2018 Proves to Be Another Robust Year for Austin Office Market Vacancy Under Construction Deliveries Net Absorption Avg

MARKETVIEW

Austin Office, Q4 2018 2018 proves to be another robust year for Austin office market Vacancy Under Construction Deliveries Net Absorption Avg. Asking Rate 9.6% 4,913,727 SF 0 SF 723,773 SF $36.64 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Vacancy Net Absorption (000s SF) Vacancy Rate (%) 2,200 26

1,400 21

600 16

(200) 11

(1,000) 6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate Source: CBRE Research, Q4 2018.

As 2018 draws to a close, absorption levels in the The cooling temperatures that have settled across office market completely rebounded from the flat the Texas Hill Country have had zero effect on first half of the year, surpassing 1.3 million sq. ft. subduing rising operational costs throughout of positive net demand for the year. As vacancy Austin. Costs rose to $10.60 per sq. ft. in Q4 2018, a slipped below 10% and citywide average asking $0.22 increase from Q3 2018. The citywide NNN rates climbed to a new historic high, developers asking rate increased $0.93, rising to $26.04 per sq. demonstrated their continued faith in Austin’s ft. Combined, the Full Service Gross asking rate for upward momentum by kicking off an additional Q4 2018 was $36.64 per sq. ft., a new record high 500,000 sq. ft. of new construction. for the Austin market. Tenant demand remains robust leading into 2019, with more than 9 million End of year absorption activity registered 723,773 sq. ft. of tenant demand currently in the market. sq. ft. of positive net demand, bringing the annual total to 1,380,173 sq. ft.; this is the 5th year in a row The Austin Business-Cycle Index (a collection of that Austin has seen yearly absorption crest 1 employment and payroll indicators) expanded at million sq. ft. Vacancy rates decreased 50 basis 7.9% in Q4 2018, above the long-term growth points from 10.2% in Q3 2018 to 9.6% in Q4 2018. average of 6.0%. Total employment in 2018 has The booming development pipeline added an increased by 3.4%, with the Construction and additional 500,000 sq. ft. in Q4 2018, bringing the Mining sector being the largest contributor to job total to 4,913,727 sq. ft. across 37 projects. growth in Austin.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q4 2018 Q4 2018 2018 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,996,720 6.3 8.8 47.88 1,539,304 - 162,083 558,794 Class A 8,073,060 5.0 7.4 52.66 1,539,304 - 160,000 498,170 Class B 2,611,510 10.0 11.6 43.47 - - 3,778 54,999 Northwest 14,549,865 9.1 11.5 36.72 709,519 - 483,533 445,607 Class A 8,959,927 9.5 12.3 40.68 709,519 - 359,387 432,180 Class B 5,411,806 8.4 10.3 32.59 - - 132,741 22,518 Far Northwest 4,531,614 6.6 12.1 32.76 396,329 - 53,518 77,807 Class A 3,012,320 7.6 11.1 35.70 396,329 - 54,221 117,876 Class B 1,392,161 4.7 14.9 29.45 - - (5,668) (37,082) Northeast 2,103,166 16.4 24.8 28.00 204,390 - 28,897 (35,900) Class A 1,031,394 17.1 26.2 28.56 - - 2,393 (30,172) Class B 891,268 18.3 19.8 25.23 204,390 - 27,056 (9,772) North 734,307 13.6 15.4 27.80 - - (28,432) 45,653 Class A - - - N/A - - - 18,578 Class B 723,307 13.2 15.0 27.8 - - (28,432) 27,075 Central 1,930,818 10.2 12.3 33.14 205,161 - (20,809) (1,941) Class A 522,914 8.2 11.3 45.42 178,770 - (20,238) 45,368 Class B 1,218,995 11.2 13.1 29.96 26,391 - (41) (34,285) Round Rock 864,126 21.0 22.3 27.88 59,476 - (12,373) 899 Class A 151,134 77.3 77.3 31.15 - - - 1,050 Class B 670,874 9.3 10.9 24.63 59,476 - (12,373) 2,364 East 711,658 17.0 17.2 43.82 1,004,146 - (8,279) (24,059) Class A 149,360 61.0 61.8 46.72 793,146 - (9,637) (4,771) Class B 452,823 5.0 5.0 38.17 211,000 - 1,358 (19,288) South 1,141,364 4.4 4.9 31.00 170,183 - (11,898) 102,221 Class A 399,458 1.3 1.3 47.93 129,201 - (5,191) 110,596 Class B 405,857 2.2 3.7 34.80 40,982 - 4,648 15,493 Southeast 1,127,958 16.1 16.4 26.47 138,850 - 45,028 49,905 Class A 155,022 13.4 13.4 31.62 71,225 - 3,456 (13,117) Class B 876,225 17.8 18.2 27.46 67,625 - 41,572 61,135 Southwest 11,102,764 11.4 15.7 36.64 486,369 - 32,505 161,187 Class A 7,730,533 12.1 17.7 40.93 427,102 - 21,068 159,621 Class B 3,225,191 9.9 11.4 31.00 59,267 - 10,743 (536) Austin Total 49,794,360 9.6 12.8 36.64 4,913,727 - 723,773 1,380,173

Class A 30,185,122 9.5 13.1 42.25 4,244,596 - 565,459 1,335,379 Class B 17,880,017 9.8 12.0 31.84 669,131 - 175,382 82,621

Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q4 2018.

Figure 3: Austin Labor Force & Unemployment (%) (Thousands) 8 1,300 Forecast 7 1,100 6 900 5 700 4 3 500 2 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Total Employment (Non-Farm) Unemployment Rate Source: Moody’s Analytics, October 2018.

Figure 4: Historical Construction and Deliveries MSF 5.0

4.0

3.0

2.0

1.0

0.0 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Under Construction Delivered Construction Source: CBRE Research, Q4 2018.

Figure 5: Significant Leases / Sales of Q4 2018 Figure 6: Q4 2018 Signed Leases by Industry

Lease (Tenant) Property Total SF 22% Cognitive Scale Inc 9500 Arboretum 54,070 31% EBQuickstart Bergstrom Tech Center 41,406

Industrious 823 Congress 23,659 20% 6% Sale (Building) Address Total SF 4% 18% Prominent Pointe I & II 8310 N Capital of Texas 252,943 Technology Business Services Engineering Cambridge Tower 1801 Lavaca St 240,000 Financial Health Other

Source: CBRE Research, Real Capital Analytics, Q4 2018. Source: CBRE Research, Q4 2018.

Figure 7: Historical Market Statistics 2011 2012 2013 2014 2015 2016 2017 YTD 2018 CBD Absorption (Net SF) 167,794 177,023 64,099 369,822 649,300 97,639 564,236 558,794 Asking Rent, Avg. Annual 34.07 36.08 38.15 40.1 41.33 47.67 44.95 47.88 Delivered Construction (SF) - - - 167,871 557,470 195,863 745,936 122,667 Vacancy Rate (%) 13.3 12 12 9.4 7.1 7.8 7.9 6.3 NORTHWEST Absorption (Net SF) 1,103,368 677,714 179,614 224,246 669,701 286,950 471,598 445,607 Asking Rent, Avg. Annual 25.37 25.83 26.28 29.48 31.96 32.8 33.84 36.72 Delivered Construction (SF) - - - 143,331 591,973 372,235 386,921 308,000 Vacancy Rate (%) 20.2 15.3 10.4 9.4 8.8 8.8 8.6 9.1 FAR NORTHWEST * Absorption (Net SF) N/A N/A 366,763 79,360 198,389 336,470 230,820 77,807 Asking Rent, Avg. Annual N/A N/A 27.85 28.95 30.95 30.62 31.79 32.76 Delivered Construction (SF) N/A N/A - - 128,700 - - - Vacancy Rate (%) N/A N/A 12.2 13.8 9.5 9.4 6.3 6.6 NORTHEAST ** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 64,819 (35,900) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 24.05 28.00 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 115,000 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 9.6 16.4 NORTH CENTRAL*** Absorption (Net SF) 103,556 (109,170) 90,741 222,683 90,066 251,093 N/A N/A Asking Rent, Avg. Annual 21.12 21.63 23.14 22.89 27.29 25.95 N/A N/A Delivered Construction (SF) - - - - 214,962 46,000 N/A N/A Vacancy Rate (%) 21.6 23 23.8 15.4 13.1 10.2 N/A N/A NORTH** Absorption (Net SF) N/A N/A N/A N/A N/A N/A (18,159) 45,653 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.81 27.80 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A - - Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 15.5 13.6 CENTRAL** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 52,348 (1,941) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 31.39 33.14 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A - - Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 6.2 10.2 ROUND ROCK Absorption (Net SF) 37,083 8,592 26,097 41,367 19,892 18,801 (9,845) 899 Asking Rent, Avg. Annual 23.02 21.17 22.67 23.77 24.99 22.91 21.11 27.88 Delivered Construction (SF) - - - - - 59,043 22,500 164,486 Vacancy Rate (%) 21.5 19.3 15.1 9.8 6.6 7 8.3 21.0 EAST Absorption (Net SF) (32,154) 387,386 1,722 49,392 58,736 428,135 49,398 (24,059) Asking Rent, Avg. Annual 16.19 16.38 17.2 16.71 19.55 20.13 34.67 43.82 Delivered Construction (SF) - - 30,451 - 191,990 199,408 59,655 246,711 Vacancy Rate (%) 27.6 12.7 16.7 14.9 17.9 6.6 7.5 17.0 SOUTH Absorption (Net SF) 52,136 83,355 25,359 70,143 33,337 158,472 23,598 102,221 Asking Rent, Avg. Annual 15.13 15.38 15.13 14.73 15.02 24.68 31.90 31.00 Delivered Construction (SF) 24,440 - - - - - 57,500 115,246 Vacancy Rate (%) 23.6 21 19.9 16.3 14.4 16 12.1 4.4 SOUTHEAST** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 71,123 49,905 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.55 26.47 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 29,205 - Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 20.2 16.1 SOUTHWEST Absorption (Net SF) 367,752 205,677 149,911 101,327 419,723 159,982 154,081 161,187 Asking Rent, Avg. Annual 25.47 26.8 29.83 31.78 34.34 35.99 34.31 36.64 Delivered Construction (SF) - - 92,008 76,500 1,062,477 - 410,295 135,500 Vacancy Rate (%) 12.3 9.9 8.4 8.4 10.3 9.7 10.7 11.4 AUSTIN TOTAL Absorption (Net SF) 1,799,535 1,430,577 904,306 1,158,340 2,139,144 1,737,542 1,654,017 1,380,173 Asking Rent, Avg. Annual 25.35 26.24 28.15 29.56 31.81 34.83 34.39 36.64 Delivered Construction (SF) 24,440 - 122,459 387,702 2,747,572 872,549 1,712,012 1,207,610 Vacancy Rate (%) 17.5 14.2 12.1 10.6 9.6 9.2 8.8 9.6

Source: CBRE Research, Q4 2018. *Submarket created in 2013 **Submarket created in 2017 ***Submarket removed in 2017

CONTACTS CBRE OFFICES

Luke Goebel CBRE Austin Research Analyst 500 W 2nd Street, Suite 1700 [email protected] Austin, TX 78701

E. Michelle Miller To learn more about CBRE Research, or to access Research Operations Manager additional research reports, please visit the Global [email protected] Research Gateway at www.cbre.com/researchgateway.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW

Austin Office, Q3 2018 Down with vacancy and up with absorption in Q3 2018

10.2% 4,445,358 SF 580,487 SF 575,927 SF $35.49 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Vacancy Net Absorption (000s SF) Vacancy Rate (%) 2,200 26

1,400 21

600 16

-200 11

-1,000 6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate Source: CBRE Research, Q3 2018.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q3 2018 Q3 2018 2018 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,996,720 7.2 9.9 47.02 1,539,304 20,001 302,381 396,711 Class A 8,021,093 6.2 9.1 52.23 1,539,304 20,001 258,365 338,170 Class B 2,532,105 9.5 11.4 41.78 - - 39,576 51,221 Northwest 14,549,865 10.0 12.2 35.73 635,964 308,000 (35,785) (37,926) Class A 9,141,673 10.5 12.6 39.90 635,964 308,000 13,533 72,793 Class B 5,117,560 9.8 12.2 31.28 - - (50,992) (110,223) Far Northwest 4,531,614 7.8 13.9 33.23 431,384 - 43,594 24,289 Class A 2,854,424 6.3 8.9 36.57 431,384 - 27,227 63,655 Class B 1,550,057 10.5 23.7 30.16 - - 20,059 (31,414) Northeast 2,103,166 17.8 27.8 25.02 204,390 115,000 53,009 (64,797) Class A 1,031,394 17.3 29.5 25.92 - 115,000 29,837 (32,565) Class B 891,268 21.4 23.2 23.90 204,390 - 23,172 (36,828) North 734,307 11.4 17.9 26.42 - - 13,026 74,085 Class A 114,091 19.8 52.8 25.89 - - 125 18,578 Class B 609,216 9.3 10.9 27.52 - - 12,901 55,507 Central 1,961,081 9.0 10.2 31.73 26,391 - 1,840 18,868 Class A 522,914 4.2 5.1 44.04 - - (8,591) 65,606 Class B 1,249,258 10.9 12.4 29.03 26,391 - 4,706 (34,244) Round Rock 864,126 19.6 20.8 28.25 59,476 46,986 11,163 13,272 Class A 151,134 77.3 77.3 31.17 - 46,986 0 1,050 Class B 670,874 7.5 9.1 24.06 59,476 - 11,163 14,737 East 841,102 15.9 15.9 43.86 815,640 - (15,802) (15,780) Class A 373,804 33.4 33.4 47.33 604,640 - 0 4,866 Class B 357,823 6.7 6.7 38.62 211,000 - (15,802) (20,646) South 1,141,364 3.3 3.8 32.08 129,201 90,500 109,611 114,119 Class A 399,458 0.0 0.0 46.22 129,201 90,500 94,389 115,787 Class B 405,857 3.4 4.2 35.62 - - 19,033 10,845 Southeast 1,127,958 20.1 21.2 26.06 138,850 - 7,453 4,877 Class A 155,022 15.6 21.4 32.81 71,225 - (2,277) (16,573) Class B 876,225 22.6 23.0 26.99 67,625 - 8,506 19,563 Southwest 11,102,764 11.7 15.9 34.90 464,758 - 85,437 128,682 Class A 7,730,533 12.6 18.0 39.02 405,452 - 51,500 138,553 Class B 3,225,191 9.8 11.2 30.58 59,306 - 34,771 (11,279) Austin Total 49,954,067 10.2 13.6 35.49 4,445,358 580,487 575,927 656,400

Class A 30,495,540 10.1 13.7 41.30 3,817,170 580,487 464,108 769,920 Class B 17,485,434 10.8 13.6 30.95 628,188 - 107,093 (92,761)

Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q3 2018.

Total Employment (Non-Farm) Unemployment Rate Source: U.S. Bureau of Labor Statistics, Moody’s Analytics, June 2018.

Figure 4: Historical Construction and Deliveries MSF 5.0

4.0

3.0

2.0

1.0

0.0

Q1 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 Under Construction Delivered Construction Source: CBRE Research, Q3 2018.

Figure 5: Significant Leases / Sales of Q3 2018 Figure 6: Q3 2018 Signed Leases by Industry

Lease (Tenant) Property Total SF 13% HEB Grocer/Favor UpCycle 81,711 6% 38% PIMCO Frost Bank Tower 47,244 9% Keller Williams Realty Barton Skyway III 41,883 13% Sale (Building) Address Total SF 21% 3409-3737 Executive Austin Oaks Office Park 443,444 Center Drive Technology Business Services Engineering Stonebridge Plaza I & II 9606 N MoPac Expressway 386,146 Financial Health Other

Source: CBRE Research, Real Capital Analytics Q3 2018. Source: CBRE Research, Q3 2018.

Figure 7: Historical Market Statistics 2011 2012 2013 2014 2015 2016 2017 YTD 2018 CBD Absorption (Net SF) 167,794 177,023 64,099 369,822 649,300 97,639 553,795 396,711 Asking Rent, Avg. Annual 34.07 36.08 38.15 40.1 41.33 47.67 44.95 47.02 Delivered Construction (SF) 0 0 0 167,871 557,470 195,863 745,936 122,667 Vacancy Rate (%) 13.3 12 12 9.4 7.1 7.8 7.9 7.2 NORTHWEST Absorption (Net SF) 1,103,368 677,714 179,614 224,246 669,701 286,950 467,810 (37,926) Asking Rent, Avg. Annual 25.37 25.83 26.28 29.48 31.96 32.8 33.84 35.73 Delivered Construction (SF) 0 0 0 143,331 591,973 372,235 386,921 308,000 Vacancy Rate (%) 20.2 15.3 10.4 9.4 8.8 8.8 8.6 10.0 FAR NORTHWEST * Absorption (Net SF) N/A N/A 366,763 79,360 198,389 336,470 199,294 24,289 Asking Rent, Avg. Annual N/A N/A 27.85 28.95 30.95 30.62 31.79 33.23 Delivered Construction (SF) N/A N/A 0 0 128,700 0 0 0 Vacancy Rate (%) N/A N/A 12.2 13.8 9.5 9.4 6.3 7.8 NORTHEAST ** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 64,819 (64,797) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 24.05 25.02 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 115,000 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 9.6 17.8 NORTH CENTRAL*** Absorption (Net SF) 103,556 (109,170) 90,741 222,683 90,066 251,093 N/A N/A Asking Rent, Avg. Annual 21.12 21.63 23.14 22.89 27.29 25.95 N/A N/A Delivered Construction (SF) 0 0 0 0 214,962 46,000 N/A N/A Vacancy Rate (%) 21.6 23 23.8 15.4 13.1 10.2 N/A N/A NORTH** Absorption (Net SF) N/A N/A N/A N/A N/A N/A (18,159) 74,085 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.81 26.42 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 15.5 11.4 CENTRAL** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 52,348 18,868 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 31.39 31.73 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 6.2 9.0 ROUND ROCK Absorption (Net SF) 37,083 8,592 26,097 41,367 19,892 18,801 (12,545) 13,272 Asking Rent, Avg. Annual 23.02 21.17 22.67 23.77 24.99 22.91 21.11 28.25 Delivered Construction (SF) 0 0 0 0 0 59,043 22,500 164,486 Vacancy Rate (%) 21.5 19.3 15.1 9.8 6.6 7 8.3 19.6 EAST Absorption (Net SF) (32,154) 387,386 1,722 49,392 58,736 428,135 114,217 (15,780) Asking Rent, Avg. Annual 16.19 16.38 17.2 16.71 19.55 20.13 34.67 43.86 Delivered Construction (SF) 0 0 30,451 0 191,990 199,408 59,655 246,711 Vacancy Rate (%) 27.6 12.7 16.7 14.9 17.9 6.6 7.5 15.9 SOUTH Absorption (Net SF) 52,136 83,355 25,359 70,143 33,337 158,472 93,359 114,119 Asking Rent, Avg. Annual 15.13 15.38 15.13 14.73 15.02 24.68 31.90 32.08 Delivered Construction (SF) 24,440 0 0 0 0 0 57,500 115,246 Vacancy Rate (%) 23.6 21 19.9 16.3 14.4 16 12.1 3.3 SOUTHEAST** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 71,123 4,877 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.55 26.06 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 29,205 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 20.2 20.1 SOUTHWEST Absorption (Net SF) 367,752 205,677 149,911 101,327 419,723 159,982 155,443 128,682 Asking Rent, Avg. Annual 25.47 26.8 29.83 31.78 34.34 35.99 34.31 34.90 Delivered Construction (SF) 0 0 92,008 76,500 1,062,477 0 410,295 135,500 Vacancy Rate (%) 12.3 9.9 8.4 8.4 10.3 9.7 10.7 11.7 AUSTIN TOTAL Absorption (Net SF) 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 1,654,017 656,400 Asking Rent, Avg. Annual 25.35 26.24 28.15 29.56 31.81 34.83 34.39 35.49 Delivered Construction (SF) 24,440 0 122,459 387,702 2,747,572 872,549 1,709,994 1,207,610 Vacancy Rate (%) 17.5 14.2 12.1 10.6 9.6 9.2 8.8 10.2

Source: CBRE Research, Q3 2018. *Submarket created in 2013 **Submarket created in 2017 ***Submarket removed in 2017

CONTACTS CBRE OFFICES

Austin Office, Q2 2018 Resilient market pushes fundamentals during cycle’s late expansion stage

10.7% 4,195,359 SF 579,877 SF 76,902 SF $35.84 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Occupancy Net Absorption (000s SF) Vacancy Rate (%) 2,200 26

1,400 21

600 16

-200 11

-1,000 6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate Source: CBRE Research, Q2 2018.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q2 2018 Q2 2018 2018 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,929,693 9.0 12.2 46.99 1,171,560 102,666 70,059 94,330 Class A 7,972,830 8.0 11.4 52.32 1,171,560 102,666 47,753 79,805 Class B 2,513,341 11.2 14.1 41.10 - - 34,970 11,645 Northwest 14,358,664 10.2 12.5 36.16 932,743 - 18,910 (2,141) Class A 8,833,673 10.2 12.8 40.61 932,743 - 32,764 59,260 Class B 5,234,359 10.5 12.7 30.81 - - (22,877) (59,231) Far Northwest 4,484,628 6.9 8.6 32.67 450,622 - (41,407) (19,305) Class A 2,807,438 5.7 8.4 37.84 170,000 - (13,259) 36,428 Class B 1,550,057 9.0 9.2 27.47 280,622 - (26,428) (51,473) Northeast 1,779,131 17.5 28.3 24.36 307,430 - (81,550) (117,806) Class A 711,994 13.2 30.9 25.67 - - (93,632) (62,402) Class B 891,268 24.0 24.0 23.23 307,430 - 7,809 (60,000) North 734,307 12.1 20.3 25.87 - - 20,721 61,059 Class A 114,091 19.9 52.9 24.86 - - 18,453 18,453 Class B 609,216 10.1 13.8 26.50 - - 2,268 42,606 Central 1,961,081 8.8 9.9 30.91 44,391 - 16,278 17,028 Class A 522,914 2.2 3.4 40.86 18,000 - 863 74,197 Class B 1,249,258 10.5 11.7 29.02 26,391 - (22,675) (38,950) Round Rock 864,126 20.9 23.0 27.39 59,476 95,000 8,255 2,109 Class A 151,134 77.3 1.3 30.76 - - 2,200 1,050 Class B 670,874 9.1 1.5 22.74 59,476 95,000 8,570 3,574 East 691,183 13.3 13.3 43.42 948,264 246,711 3,503 22 Class A 244,360 33.4 33.4 45.33 731,367 - - 4,866 Class B 357,823 2.2 2.2 37.91 216,897 246,711 3,503 (4,844) South 1,050,864 5.4 6.4 32.54 187,656 - (3,136) 4,508 Class A 308,958 1.3 1.3 42.54 187,656 - - 21,398 Class B 405,857 8.1 10.6 34.50 - - (3,136) (8,188) Southeast 1,127,958 20.6 21.4 25.77 - - 638 (2,576) Class A 155,022 14.2 19.9 32.21 - - (3,842) (14,296) Class B 876,225 23.5 23.5 26.66 - - 4,855 11,057 Southwest 11,086,097 12.2 15.9 35.76 93,217 135,500 64,631 43,245 Class A 7,730,533 12.9 17.9 40.04 33,911 55,500 63,409 87,053 Class B 3,208,524 10.5 11.3 30.91 59,306 80,000 (776) (46,050) Austin Total 49,067,732 10.7 13.7 35.84 4,195,359 579,877 76,902 80,473

Class A 29,552,947 10.3 14.2 42.04 3,245,237 158,166 54,709 305,812 Class B 17,566,802 11.5 13.1 30.34 950,122 421,711 (13,917) (199,854)

Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q2 2018.

Figure 3: Austin Labor Force & Unemployment

(%) (Thousands) 8 Forecast 1300

7 1100 6 900 5 700 4 3 500 2 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Total Employment (Non-Farm) Unemployment Rate

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics, April 2018.

Figure 4: Historical Construction and Deliveries

MSF

4.0

3.0

2.0

1.0

0.0

Q4 2016 Q4 Q1 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 Under Construction Delivered Construction Source: CBRE Research, Q2 2018.

Figure 5: Significant Leases / Sales of Q2 2018 Figure 6: Q2 2018 Signed Leases by Industry

Lease (Tenant) Property Total SF 13% 22% Indeed Block 71 300,000 4% Internal Revenue Service IRS Compliance Center 206,418 Texas Commission on 13% Colonnade Office Center 197,496 26% Environmental Quality Sale (Building) Address Total SF 22% Quarry Lake Business Center 4515 Seton Center Pkwy 117,265 Technology Financial Services The Overlook at Rob Roy 6836 Bee Caves Rd 113,767 Business Services Engineering & Construction Healthcare Other Source: CBRE Research, Real Capital Analytics Q2 2018. Source: CBRE Research, Q2 2018.

Figure 7: Historical Market Statistics 2011 2012 2013 2014 2015 2016 2017 YTD 2018 CBD Absorption (Net SF) 167,794 177,023 64,099 369,822 649,300 97,639 553,795 94,330 Asking Rent, Avg. Annual 34.07 36.08 38.15 40.1 41.33 47.67 44.95 46.99 Delivered Construction (SF) 0 0 0 167,871 557,470 195,863 745,936 102,666 Vacancy Rate (%) 13.3 12 12 9.4 7.1 7.8 7.9 9.0 NORTHWEST Absorption (Net SF) 1,103,368 677,714 179,614 224,246 669,701 286,950 467,810 (2,141) Asking Rent, Avg. Annual 25.37 25.83 26.28 29.48 31.96 32.8 33.84 36.16 Delivered Construction (SF) 0 0 0 143,331 591,973 372,235 386,921 0 Vacancy Rate (%) 20.2 15.3 10.4 9.4 8.8 8.8 8.6 10.2 FAR NORTHWEST * Absorption (Net SF) N/A N/A 366,763 79,360 198,389 336,470 199,294 (19,305) Asking Rent, Avg. Annual N/A N/A 27.85 28.95 30.95 30.62 31.79 32.67 Delivered Construction (SF) N/A N/A 0 0 128,700 0 0 0 Vacancy Rate (%) N/A N/A 12.2 13.8 9.5 9.4 6.3 6.9 NORTHEAST ** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 64,819 (117,806) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 24.05 24.36 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 9.6 17.5 NORTH CENTRAL*** Absorption (Net SF) 103,556 (109,170) 90,741 222,683 90,066 251,093 N/A N/A Asking Rent, Avg. Annual 21.12 21.63 23.14 22.89 27.29 25.95 N/A N/A Delivered Construction (SF) 0 0 0 0 214,962 46,000 N/A N/A Vacancy Rate (%) 21.6 23 23.8 15.4 13.1 10.2 N/A N/A NORTH** Absorption (Net SF) N/A N/A N/A N/A N/A N/A (18,159) 61,059 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.81 25.87 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 15.5 12.1 CENTRAL** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 52,348 17,028 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 31.39 30.91 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 6.2 8.8 ROUND ROCK Absorption (Net SF) 37,083 8,592 26,097 41,367 19,892 18,801 (12,545) 2,109 Asking Rent, Avg. Annual 23.02 21.17 22.67 23.77 24.99 22.91 21.11 27.39 Delivered Construction (SF) 0 0 0 0 0 59,043 22,500 117,500 Vacancy Rate (%) 21.5 19.3 15.1 9.8 6.6 7 8.3 20.9 EAST Absorption (Net SF) (32,154) 387,386 1,722 49,392 58,736 428,135 114,217 22 Asking Rent, Avg. Annual 16.19 16.38 17.2 16.71 19.55 20.13 34.67 43.42 Delivered Construction (SF) 0 0 30,451 0 191,990 199,408 59,655 246,711 Vacancy Rate (%) 27.6 12.7 16.7 14.9 17.9 6.6 7.5 13.3 SOUTH Absorption (Net SF) 52,136 83,355 25,359 70,143 33,337 158,472 93,359 4,508 Asking Rent, Avg. Annual 15.13 15.38 15.13 14.73 15.02 24.68 31.90 32.54 Delivered Construction (SF) 24,440 0 0 0 0 0 57,500 24,746 Vacancy Rate (%) 23.6 21 19.9 16.3 14.4 16 12.1 5.4 SOUTHEAST** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 71,123 (2,576) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.55 25.77 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 29,205 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 20.2 20.6 SOUTHWEST Absorption (Net SF) 367,752 205,677 149,911 101,327 419,723 159,982 155,443 43,245 Asking Rent, Avg. Annual 25.47 26.8 29.83 31.78 34.34 35.99 34.31 35.76 Delivered Construction (SF) 0 0 92,008 76,500 1,062,477 0 410,295 135,500 Vacancy Rate (%) 12.3 9.9 8.4 8.4 10.3 9.7 10.7 12.2 AUSTIN TOTAL Absorption (Net SF) 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 1,654,017 80,473 Asking Rent, Avg. Annual 25.35 26.24 28.15 29.56 31.81 34.83 34.39 35.84 Delivered Construction (SF) 24,440 0 122,459 387,702 2,747,572 872,549 1,709,994 627,123 Vacancy Rate (%) 17.5 14.2 12.1 10.6 9.6 9.2 8.8 10.7

Source: CBRE Research, Q2 2018. *Submarket created in 2013 **Submarket created in 2017 ***Submarket removed in 2017

CONTACTS CBRE OFFICES

Austin Office, Q1 2018 New submarket boundaries, flat absorption, and record high rents define Q1 2018 Vacancy Under Construction Deliveries Net Absorption Avg. Asking Rate 9.7% 3,440,866 SF 47,246 SF 3,571 SF $34.99 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Occupancy Net Absorption (TSF) Occupancy (%) 1,000 100

800 95 600

400 90 200

0 85 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Net Absorption Occupancy Source: CBRE Research, Q1 2018. At the beginning of 2017, CBRE Research redrew Operational costs rose again, climbing $0.17 per the Austin office submarket boundaries to better sq. ft. to a citywide annual average of $9.74 per define the expanding market. CBRE Research sq. ft. Despite the increased vacancy and flat created a Northeast and a Southeast submarket by overall absorption this quarter, (Class A dividing the East and split up the North Central exceeded positive growth of 250,000 sq. ft., yet submarket into North and Central. After tracking Class B and C acted as an anchor to the market), these new submarkets for the past year, CBRE landlords have identified the prominent space Research is unveiling them this quarter. demand in the market and elevated the citywide annual average full service gross rate to $34.99 The first 90 days of 2018 fell flat as the Austin per sq. ft., a new leasing market high. With office market registered a mere 3,571 sq. ft. of more than 4.3 million sq. ft. of demand in the net absorption as vacancy increased 90 basis market (particularly for Class A space), Austin points to 9.7%, after spending the last half of landlords appear to remain confident in near- 2017 at the 16-year low of 8.8%. Despite the term local leasing activity. delivery of only two buildings this quarter in the suburbs, the development cycle remained Meanwhile, the Austin Business-Cycle index (a blistering as an additional 700,00 sq. ft. of new collection of employment and payroll projects kicked off this quarter, bringing the indicators) grew at 7.8% in 2017, a marked under-construction total to 3.4 million sq. ft. acceleration when compared to the growth slowdown the region experienced in 2016.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q4 2017 Q1 2018 2018 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,827,027 8.1 10.3 46.57 591,137 - 24,271 24,271 Class A 7,870,164 6.8 9.2 52.59 591,137 - 32,052 32,052 Class B 2,513,341 11.9 13.7 41.51 - - (23,325) (23,325) Northwest 14,523,162 9.8 14.0 35.25 625,862 - (21,051) (21,051) Class A 8,784,554 10.2 15.7 39.65 625,862 - 26,496 26,496 Class B 5,447,976 9.5 11.7 30.61 - - (36,354) (36,354) Far Northwest 4,450,354 5.6 9.2 32.77 415,567 - 22,102 22,102 Class A 2,807,438 5.3 8.8 38.22 170,000 - 49,687 49,687 Class B 1,550,057 6.2 10.3 26.45 245,567 - (25,045) (25,045) Northeast 1,779,131 12.6 16.3 22.73 307,430 - (36,256) (36,256) Class A 711,994 0 0 N/A - - 31,230 31,230 Class B 891,268 24.2 24.2 23.44 307,430 - (67,809) (67,809) North 752,371 13.1 19.0 23.99 - - 40,338 40,338 Class A 114,091 36.1 66.1 21.44 - - 0 0 Class B 609,216 8.7 10.3 25.68 - - 40,338 40,338 Central 1,961,081 9.6 10.3 30.47 44,391 - 750 750 Class A 522,914 2.4 3.2 40.73 18,000 - 73,334 73,334 Class B 1,249,258 8.7 9.4 28.88 26,391 - (16,275) (16,275) Round Rock 769,126 11.7 13.6 23.91 154,476 22,500 (6,146) (6,146) Class A 56,134 42.7 0.3 29.50 - 22,500 (1,150) (1,150) Class B 670,874 9.8 1.5 21.66 154,476 - (4,996) (4,996) East 650,386 2.2 2.2 35.30 924,078 - (3,481) (3,481) Class A 162,649 0 0 N/A 616,367 - 4,866 4,866 Class B 398,737 2.9 2.9 35.95 307,711 - (8,347) (8,347) South 1,050,864 5.0 5.2 32.21 187,656 24,746 7,644 7,644 Class A 308,958 1.3 1.3 42.54 187,656 - 21,398 21,398 Class B 405,857 7.0 7.4 34.36 - - (5,052) (5,052) Southeast 1,127,958 20.5 20.7 23.58 - - (3,214) (3,214) Class A 155,022 11.7 13.3 31.00 - - (10,454) (10,454) Class B 876,225 23.8 23.8 24.22 - - 6,202 6,202 Southwest 10,950,597 11.6 15.9 35.29 190,269 - (21,386) (21,386) Class A 7,595,033 12.3 18.1 39.59 89,411 - 23,644 23,644 Class B 3,208,524 10.2 11.0 30.42 100,858 - (45,274) (45,274) Austin Total 48,842,057 9.7 13.0 34.99 3,440,866 47,246 3,571 3,571

Class A 29,088,951 9.0 13.3 41.49 2,298,433 47,246 251,103 251,103 Class B 17,821,333 10.8 12.5 29.94 1,142,433 - (185,937) (185,937)

Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q1 2018.

Figure 3: Austin Labor Force & Unemployment

(%) (Thousands) 8 Forecast 1200 1100 7 1000 6 900 800 5 700 4 600 500 3 400 2 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Total Employment (Non-Farm) Unemployment Rate

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics, March 2018.

Figure 4: Historical Construction and Deliveries

MSF 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Under Construction Delivered Construction Source: CBRE Research, Q1 2018.

Figure 5: Significant Leases / Sales of Q1 2018 Figure 6: Q1 2018 Signed Leases by Industry

Lease (Tenant) Property Total SF 10% Parsley Energy 300 Colorado 300,000 10% 28% Sailpoint Technologies Four Points Centre 165,000 7% State of Texas Braker Pointe III 115,000

Sale (Building) Address Total SF 24% 21%

Rollingwood Center I & II 2500 Bee Caves Rd 214,000 Technology Financial Services Business Services Latana Ridge 7601 Southwest Pkwy 175,000 Engineering Healthcare Other

Source: CBRE Research, Real Capital Analytics Q1 2018. Source: CBRE Research, Q1 2018.

Figure 7: Historical Market Statistics 2011 2012 2013 2014 2015 2016 2017 YTD 2018 CBD Absorption (Net SF) 167,794 177,023 64,099 369,822 649,300 97,639 553,795 24,271 Asking Rent, Avg. Annual 34.07 36.08 38.15 40.1 41.33 47.67 44.95 46.57 Delivered Construction (SF) 0 0 0 167,871 557,470 195,863 745,936 0 Vacancy Rate (%) 13.3 12 12 9.4 7.1 7.8 7.9 8.1 NORTHWEST Absorption (Net SF) 1,103,368 677,714 179,614 224,246 669,701 286,950 467,810 (21,051) Asking Rent, Avg. Annual 25.37 25.83 26.28 29.48 31.96 32.8 33.84 35.25 Delivered Construction (SF) 0 0 0 143,331 591,973 372,235 386,921 0 Vacancy Rate (%) 20.2 15.3 10.4 9.4 8.8 8.8 8.6 9.8 FAR NORTHWEST * Absorption (Net SF) N/A N/A 366,763 79,360 198,389 336,470 199,294 22,102 Asking Rent, Avg. Annual N/A N/A 27.85 28.95 30.95 30.62 31.79 32.77 Delivered Construction (SF) N/A N/A 0 0 128,700 0 0 0 Vacancy Rate (%) N/A N/A 12.2 13.8 9.5 9.4 6.3 5.6 NORTHEAST ** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 64,819 (36,256) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 24.05 22.73 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 9.6 12.6 NORTH CENTRAL*** Absorption (Net SF) 103,556 -109,17 90,741 222,683 90,066 251,093 N/A N/A Asking Rent, Avg. Annual 21.12 21.63 23.14 22.89 27.29 25.95 N/A N/A Delivered Construction (SF) 0 0 0 0 214,962 46,000 N/A N/A Vacancy Rate (%) 21.6 23 23.8 15.4 13.1 10.2 N/A N/A NORTH** Absorption (Net SF) N/A N/A N/A N/A N/A N/A -18,159 40,338 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.81 23.99 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 15.5 13.1 CENTRAL** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 52,348 750 Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 31.39 30.47 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 0 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 6.2 9.6 ROUND ROCK Absorption (Net SF) 37,083 8,592 26,097 41,367 19,892 18,801 -12,545 (6,146) Asking Rent, Avg. Annual 23.02 21.17 22.67 23.77 24.99 22.91 21.11 23.91 Delivered Construction (SF) 0 0 0 0 0 59,043 22,500 22,500 Vacancy Rate (%) 21.5 19.3 15.1 9.8 6.6 7 8.3 11.7 EAST Absorption (Net SF) -32,154 387,386 1,722 49,392 58,736 428,135 114,217 (3,481) Asking Rent, Avg. Annual 16.19 16.38 17.2 16.71 19.55 20.13 34.67 35.30 Delivered Construction (SF) 0 0 30,451 0 191,990 199,408 59,655 0 Vacancy Rate (%) 27.6 12.7 16.7 14.9 17.9 6.6 7.5 2.2 SOUTH Absorption (Net SF) 52,136 83,355 25,359 70,143 33,337 158,472 93,359 7,644 Asking Rent, Avg. Annual 15.13 15.38 15.13 14.73 15.02 24.68 31.90 32.21 Delivered Construction (SF) 24,440 0 0 0 0 0 57,500 24,746 Vacancy Rate (%) 23.6 21 19.9 16.3 14.4 16 12.1 5.0 SOUTHEAST** Absorption (Net SF) N/A N/A N/A N/A N/A N/A 71,123 (3,214) Asking Rent, Avg. Annual N/A N/A N/A N/A N/A N/A 23.55 23.58 Delivered Construction (SF) N/A N/A N/A N/A N/A N/A 29,205 0 Vacancy Rate (%) N/A N/A N/A N/A N/A N/A 20.2 20.5 SOUTHWEST Absorption (Net SF) 367,752 205,677 149,911 101,327 419,723 159,982 155,443 (21,386) Asking Rent, Avg. Annual 25.47 26.8 29.83 31.78 34.34 35.99 34.31 35.29 Delivered Construction (SF) 0 0 92,008 76,500 1,062,477 0 410,295 Vacancy Rate (%) 12.3 9.9 8.4 8.4 10.3 9.7 10.7 11.6 AUSTIN TOTAL Absorption (Net SF) 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 1,654,017 3,571 Asking Rent, Avg. Annual 25.35 26.24 28.15 29.56 31.81 34.83 34.39 34.99 Delivered Construction (SF) 24,440 0 122,459 387,702 2,747,572 872,549 1,709,994 47,246 Vacancy Rate (%) 17.5 14.2 12.1 10.6 9.6 9.2 8.8 9.7

Source: CBRE Research, Q1 2018. *Submarket created in 2013 **Submarket created in 2017 ***Submarket removed in 2017

CONTACTS CBRE OFFICES

Robert C. Kramp CBRE Austin Director, Research & Analysis 500 W 2nd Street, Suite 1700 [email protected] Austin, TX 78701

Luke Goebel Research Analyst [email protected]

Austin Office, Q4 2017 Active year for Austin occupiers, developers and landlords (again) Vacancy Under Construction Deliveries Net Absorption Avg. Asking Rate 8.8% 2,695,843 SF 156,031 SF 313,395 SF $34.39 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Occupancy Net Absorption (MSF) Occupancy (%) 3 100 95 2 90 1 85 80 0 75 (1) 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net Absorption Occupancy Source: CBRE Research, Q4 2017. As 2017 comes to a close, the Austin office market Vacancy held steady this quarter at 8.8% , a low not once again registered an active year of over 1.0 seen since Q2 2001. Operational costs in Austin million sq. ft. of positive net absorption as rose $0.86 per sq. ft. in the past 180 days , climbing vacancy was pushed down to a 16-year low. The to a citywide annual average of $9.57 per sq. ft. In development cycle has remained fiery as order to offset the increasing operational costs, developers kicked off an additional 600,000 sq. ft. landlords have been pressed to again lower NNN of new construction, closing out the year with asking rates to a citywide average of $24.82 per sq. approximately 2.7 million sq. ft. of new office ft., down from $25.22 per sq. ft. in Q3 2017 and space. With new supply in lockstep with demand, $26.12 per sq. ft. in Q2 2017. Despite the 2018 is looking to be another year of solid leasing decreasing NNN asking rate, the citywide average activity within Austin’s office market. FS Gross rate rose $0.07 per sq. ft. from Q3 2017 to $34.39 per sq. ft. Absorption activity during the past 90 days, though, was muted compared to the previous three In October 2017, Austin’s unemployment fell to quarters, registering 313,395 sq. ft., with tenants 2.6%, the lowest level since the late 1990s. Year-to- giving back space in three submarkets. The date labor growth was 1.4%, more than double the technology sector continued to account for the state’s rate of 0.6%. The Austin Business-Cycle majority of new leases, as 32% originated from index grew at 7.3% annually, above the long-term tech related companies. Financial and business growth trend of 6.0%, spurred by strong job services accounted for 29% of new leases. numbers.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q4 2017 Q4 2017 2017 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,776,719 7.9 10.0 45.29 446,137 - 149,303 553,795 Class A 7,819,856 6.8 8.7 52.05 446,137 - 135,293 565,599 Class B 2,513,341 10.9 13.6 39.19 - - 15,768 (18,748) Northwest 14,198,823 8.6 12.8 34.01 625,862 95,863 131,614 467,810 Class A 8,784,554 8.7 13.2 37.66 625,862 95,863 (37,975) 243,999 Class B 5,246,615 8.6 12.4 30.45 - - 169,589 224,184 Far Northwest 4,243,782 6.3 8.9 32.08 245,567 - (8,768) 199,294 Class A 2,807,438 7.0 8.7 35.50 - - (21,554) 143,183 Class B 1,343,485 5.1 9.8 28.04 245,567 - 12,786 54,844 North Central 3,243,171 7.7 10.7 27.36 44,391 - (20,644) 82,644 Class A 687,005 8.3 20.0 34.90 18,000 - (25,246) 10,560 Class B 2,215,215 8.0 8.7 26.40 26,391 - 3,762 70,536 Round Rock 777,248 8.3 10.0 21.22 154,476 - 7,617 (12,545) Class A 33,634 3.1 3.1 34.00 - - 4,645 6,775 Class B 701,496 9.1 10.9 21.18 154,476 457 (19,320) East 2,411,073 7.5 9.8 25.53 831,508 - 32,658 114,217 Class A 874,643 4.1 7.7 38.72 406,367 - 32,332 105,822 Class B 1,271,561 10.4 12.4 25.91 425,141 - (2,872) (1,186) South 2,180,031 12.1 12.3 25.90 212,402 - 65,608 93,359 Class A 439,234 2.6 3.2 34.25 212,402 - 21,657 19,998 Class B 1,318,677 18.6 18.8 26.61 - - 35,993 60,291 Southwest 10,853,834 10.7 14.9 34.49 135,500 60,168 (43,993) 155,443 Class A 7,534,865 11.8 17.3 38.77 55,500 60,168 (76,503) 58,832 Class B 3,171,929 8.1 9.5 31.06 80,000 - 32,561 96,563 Austin Total 48,684,681 8.8 12.0 34.39 2,695,843 156,031 313,395 1,654,017

Class A 28,981,229 8.6 12.5 40.54 1,764,268 156,031 32,649 1,154,768 Class B 17,782,319 9.4 11.8 30.05 931,575 - 268,044 467,164 Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q4 2017.

Figure 3: Significant Leases / Sales of Q4 2017 Figure 4: Q4 2017 Signed Leases by Industry

Lease (Tenant) Property Total SF

Samsung 3900 San Clemente 42,287 18% 32% BMC Software, Inc. Avallon – Bldg. IV 36,000

Quest Software, Inc. Braker Pointe III 29,303 14%

Sale (Building) Address Total SF 7% 11% Encino Trace I & II 5707 Southwest Pkwy 319,743 18%

Cielo Center 1250 Capital of Texas Hwy 270,711 Technology Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q4 2017. Source: CBRE Research, Q4 2017.

Figure 5: Historical Market Statistics

2010 2011 2012 2013 2014 2015 2016 2017 CBD Absorption (Net SF) 190,764 167794 177,023 64,099 369,822 649,300 97,639 553,795 Asking Rent, Avg. Annual 33.33 34.07 36.08 38.15 40.10 41.33 47.67 45.29 Delivered Construction (SF)0000167,871 557,470 195,863 745,552 Vacancy Rate (%) 15.9 13.3 12.0 12.0 9.4 7.1 7.8 7.9 NORTHWEST Absorption (Net SF) 14,469 1,103,368 677,714 179,614 224,246 669,701 286,950 467,810 Asking Rent, Avg. Annual 24.91 25.37 25.83 26.28 29.48 31.96 32.80 34.01 Delivered Construction (SF)0000143,331 591,973 372,235 386,921 Vacancy Rate (%) 27.6 20.2 15.3 10.4 9.4 8.8 8.8 8.6 FAR NORTHWEST * Absorption (Net SF) N/A N/A N/A 366,763 79,360 198,389 336,470 199,294 Asking Rent, Avg. Annual N/A N/A N/A 27.85 28.95 30.95 30.62 32.08 Delivered Construction (SF) N/A N/A N/A 0 0 128,700 0 0 Vacancy Rate (%) N/A N/A N/A 12.2 13.8 9.5 9.4 6.3 NORTH CENTRAL Absorption (Net SF) 122,855 103,556 (10,917) 90,741 222,683 90,066 251,093 82,644 Asking Rent, Avg. Annual 18.42 21.12 21.63 23.14 22.89 27.29 25.95 25.52 Delivered Construction (SF)00000214,962 46,000 0 Vacancy Rate (%) 29.2 21.6 23.0 23.8 15.4 13.1 10.2 7.1 ROUND ROCK Absorption (Net SF) (7,999) 37,083 8,592 26,097 41,367 19,892 18,801 (12,545) Asking Rent, Avg. Annual 24.52 23.02 21.17 22.67 23.77 24.99 22.91 21.22 Delivered Construction (SF)00000059,0430 Vacancy Rate (%) 47.0 21.5 19.3 15.1 9.8 6.6 7.0 8.3 EAST Absorption (Net SF) (26,865) (32,154) 387,386 1,722 49,392 58,736 428,135 114,217 Asking Rent, Avg. Annual 16.71 16.19 16.38 17.20 16.71 19.55 20.13 25.53 Delivered Construction (SF) 0 0 0 30,451 0 191,990 199,408 109,726 Vacancy Rate (%) 29.4 27.6 12.7 16.7 14.9 17.9 6.6 7.5 SOUTH Absorption (Net SF) 31,047 52,136 83,355 25,359 70,143 33,337 158,472 93,359 Asking Rent, Avg. Annual 18.01 15.13 15.38 15.13 14.73 15.02 24.68 25.90 Delivered Construction (SF)024,4400000057,500 Vacancy Rate (%) 25.3 23.6 21.0 19.9 16.3 14.4 16.0 12.1 SOUTHWEST Absorption (Net SF) 295,845 367,752 205,677 149,911 101,327 419,723 159,982 155,443 Asking Rent, Avg. Annual 25.76 25.47 26.80 29.83 31.78 34.34 35.99 34.49 Delivered Construction (SF) 0 0 0 92,008 76,500 1,062,477 0 410,295 Vacancy Rate (%) 16.0 12.3 9.9 8.4 8.4 10.3 9.7 10.7 AUSTIN TOTAL Absorption (Net SF) 620,116 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 1,654,017 Asking Rent, Avg. Annual 25.27 25.35 26.24 28.15 29.56 31.81 34.83 34.39 Delivered Construction (SF) 0 24,440 0 122,459 387,702 2,747,572 872,549 1,709,994 Vacancy Rate (%) 23.1 17.5 14.2 12.1 10.6 9.6 9.2 8.8 Source: CBRE Research, Q4 2017. *Submarket created in 2013

Figure 6: Historical Construction and Deliveries MSF 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Under Construction Delivered Construction

Source: CBRE Research, Q4 2017.

CONTACTS

Robert C. Kramp Director, Research & Analysis [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Luke Goebel Research Coordinator [email protected]

CBRE OFFICES

CBRE Austin 500 W 2nd Street, Suite 1700 Austin, TX 78701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q3 2017 Citywide absorption crests 1M sq. ft. as vacancy hits new 16 year low Vacancy Under Construction Completions Net Absorption Avg. Asking Rate 8.8% 2,041,035 SF 272,315 SF 643,290 SF $34.32 PSF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Occupancy Net Absorption (MSF) Occupancy (%) 3 100 95 2 90 1 85 80 0 75 (1) 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net Absorption Occupancy Source: CBRE Research, Q3 2017. Robust activity during Q3 2017 continued to Vacancy fell 50 basis points (bps) this quarter to demonstrate the resiliency of the Austin office 8.8%, the lowest vacancy rate the office market has market as tenant demand remained robust, registered since Q2 2001. The average annual pushing yearly absorption past the 1.0 million sq. asking rate compressed $0.51 per sq. ft. from Q2 ft. mark. With approximately 2.0 million sq. ft. of 2017 to $34.32 per sq. ft. Operational costs rose new office space currently under construction, the from a citywide average of $8.71 per sq. ft. in Q2 consistent demand for space in Austin has boded 2017 to $9.10 per sq. ft., while the average NNN well for developers who continue to bet on Austin’s asking rate fell from $26.12 per sq. ft. to $25.22 per growing prominence. sq. ft. Landlords have been motivated to slightly wane asking rates to accommodate for rising Absorption activity during Q3 2017 surpassed operational costs to entice tenant demand. 640,000 sq. ft., with only two submarkets registering negative absorption throughout the In July 2017, the unemployment rate in Austin fell quarter. The technology sector accounted for 31% to 2.8%, the second-lowest jobless rate among the of new leases signed in Q3 2017, maintaining the nation’s major metro areas. Job growth through prominence of the industry in Austin. Engineering July was 1.7%, and the business-cycle index grew at firms elucidated their attraction to Austin as well, 4.8% annualized in July, 120 bps below the long- with 16% of new leases signed coming from this term growth rate of 6.0%, suggesting that Austin is market segment. still adjusting to the expansive growth it experienced during the post-Recession period.

Figure 2: Austin Office Market Statistics

Net Total Total Avg. FSG Under Q3 2017 Q3 2017 YTD 2017 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,769,214 7.6 10.1 44.91 446,137 245,116 328,589 404,492 Class A 7,812,351 6.8 8.9 51.26 446,137 245,116 319,551 430,306 Class B 2,513,341 9.9 13.0 38.47 - - 11,464 (34,516) Northwest 14,102,960 9.0 11.8 33.83 405,863 - 180,751 336,196 Class A 8,688,691 8.4 10.8 37.83 405,863 - 91,765 281,974 Class B 5,246,615 10.2 13.8 30.07 - - 88,986 54,595 Far Northwest 4,259,577 5.6 6.7 31.57 245,567 - 118,356 208,062 Class A 2,823,233 5.8 7.4 34.65 - - 96,214 164,737 Class B 1,343,485 5.2 5.4 28.03 245,567 - 18,475 42,058 North Central 3,243,171 7.1 10.5 25.52 - - 8,812 103,288 Class A 687,005 4.6 13.9 28.94 - - 6,064 35,806 Class B 2,215,215 8.1 10.2 25.90 - - 4,953 66,774 Round Rock 777,248 9.3 10.7 22.52 154,476 - (276) (20,162) Class A 33,634 16.9 16.9 34.00 - - 4,000 2,130 Class B 701,496 9.1 10.7 22.06 154,476 (6,504) (19,777) East 2,411,073 8.8 11.3 26.68 524,078 - 9,607 81,559 Class A 874,643 7.8 11.4 32.72 406,863 - (21,992) 73,490 Class B 1,271,561 10.2 12.4 26.41 117,711 - 28,407 1,686 South 2,038,263 15.3 15.4 28.40 149,246 - 35,776 27,751 Class A 297,466 5.7 5.7 33.63 149,246 - 4,934 (1,659) Class B 1,318,677 21.4 21.5 30.14 - - 34,278 24,298 Southwest 10,860,592 10.2 14.4 33.80 115,668 27,199 (38,325) 199,436 Class A 7,541,623 10.8 16.1 37.85 115,668 - (59,070) 135,335 Class B 3,171,929 8.7 10.6 30.15 - 27,199 18,433 64,002 Austin Total 48,462,098 8.8 11.6 34.32 2,041,035 272,315 643,290 1,340,622

Class A 28,758,646 8.2 11.4 40.31 1,523,777 245,116 441,466 1,122,119 Class B 17,782,319 10.1 12.4 30.16 517,754 27,199 198,492 199,120 Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q3 2017.

Figure 3: Significant Leases / Sales of Q3 2017 Figure 4: Q3 2017 Signed Leases by Industry

Lease (Tenant) Property Total SF 16% 3M Parmer 3.3 272,000 31% SailPoint Technologies Four Points 170,000 11% iFLY Holdings Bridgepoint IV 22,820 4% Sale (Building) Address Total SF 9% 16% 5th+Colorado* 201 W 5th St. 179,846 13% 3900 N Capital of Texas 3900 San Clemente 251,143 Technology Financial Services Business Services Hwy Engineering Healthcare Legal *This is the largest PSF sale in Austin office history Other Source: CBRE Research, Q3 2017. Source: CBRE Research, Q3 2017.

Figure 5: Historical Market Statistics

2010 2011 2012 2013 2014 2015 2016 YTD 2017 CBD Absorption (Net SF) 190,764 167794 177,023 64,099 369,822 649,300 97,639 404,492 Asking Rent, Avg. Annual 33.33 34.07 36.08 38.15 40.10 41.33 47.67 44.91 Delivered Construction (SF)0000167,871 557,470 195,863 745,552 Vacancy Rate (%) 15.9 13.3 12.0 12.0 9.4 7.1 7.8 7.6 NORTHWEST Absorption (Net SF) 14,469 1,103,368 677,714 179,614 224,246 669,701 286,950 336,196 Asking Rent, Avg. Annual 24.91 25.37 25.83 26.28 29.48 31.96 32.80 33.83 Delivered Construction (SF)0000143,331 591,973 372,235 291,058 Vacancy Rate (%) 27.6 20.2 15.3 10.4 9.4 8.8 8.8 9.0 FAR NORTHWEST * Absorption (Net SF) N/A N/A N/A 366,763 79,360 198,389 336,470 208,062 Asking Rent, Avg. Annual N/A N/A N/A 27.85 28.95 30.95 30.62 31.57 Delivered Construction (SF) N/A N/A N/A 0 0 128,700 0 0 Vacancy Rate (%) N/A N/A N/A 12.2 13.8 9.5 9.4 5.6 NORTH CENTRAL Absorption (Net SF) 122,855 103,556 (10,917) 90,741 222,683 90,066 251,093 103,288 Asking Rent, Avg. Annual 18.42 21.12 21.63 23.14 22.89 27.29 25.95 25.52 Delivered Construction (SF)00000214,962 46,000 0 Vacancy Rate (%) 29.2 21.6 23.0 23.8 15.4 13.1 10.2 7.1 ROUND ROCK Absorption (Net SF) (7,999) 37,083 8,592 26,097 41,367 19,892 18,801 (20,162) Asking Rent, Avg. Annual 24.52 23.02 21.17 22.67 23.77 24.99 22.91 22.52 Delivered Construction (SF)00000059,0430 Vacancy Rate (%) 47.0 21.5 19.3 15.1 9.8 6.6 7.0 9.3 EAST Absorption (Net SF) (26,865) (32,154) 387,386 1,722 49,392 58,736 428,135 81,559 Asking Rent, Avg. Annual 16.71 16.19 16.38 17.20 16.71 19.55 20.13 26.68 Delivered Construction (SF) 0 0 0 30,451 0 191,990 199,408 109,726 Vacancy Rate (%) 29.4 27.6 12.7 16.7 14.9 17.9 6.6 8.8 SOUTH Absorption (Net SF) 31,047 52,136 83,355 25,359 70,143 33,337 158,472 27,751 Asking Rent, Avg. Annual 18.01 15.13 15.38 15.13 14.73 15.02 24.68 28.40 Delivered Construction (SF)024,4400000057,500 Vacancy Rate (%) 25.3 23.6 21.0 19.9 16.3 14.4 16.0 15.3 SOUTHWEST Absorption (Net SF) 295,845 367,752 205,677 149,911 101,327 419,723 159,982 199,436 Asking Rent, Avg. Annual 25.76 25.47 26.80 29.83 31.78 34.34 35.99 33.8 Delivered Construction (SF) 0 0 0 92,008 76,500 1,062,477 0 350,127 Vacancy Rate (%) 16.0 12.3 9.9 8.4 8.4 10.3 9.7 10.2 AUSTIN TOTAL Absorption (Net SF) 620,116 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 1,340,622 Asking Rent, Avg. Annual 25.27 25.35 26.24 28.15 29.56 31.81 34.83 34.32 Delivered Construction (SF) 0 24,440 0 122,459 387,702 2,747,572 872,549 1,553,963 Vacancy Rate (%) 23.1 17.5 14.2 12.1 10.6 9.6 9.2 8.8 Source: CBRE Research, Q3 2017. *Submarket created in 2013

Figure 6: Historical Construction and Deliveries MSF 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Under Construction Delivered Construction

Source: CBRE Research, Q3 2017.

CONTACTS

Robert C. Kramp Director, Research & Analysis [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Luke Goebel Research Coordinator [email protected]

CBRE OFFICES

CBRE Austin 500 W 2nd Street, Suite 1700 Austin, TX 78701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q2 2017 Cranes abound as construction activity heats up

Vacancy Under Construction Completions Net Absorption Avg. Asking Rate 9.3% 1,944,728 SF 271,724 SF 605,602 SF $34.83 PSF

*Arrows indicate change from previous quarter. Figure 1: Historical Construction and Deliveries MSF 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Under Construction Delivered Construction Source: CBRE Research, Q2 2017. There is a saying amongst the locals of Austin that Market fundamentals rebounded this quarter as the new official bird of the city is the majestic citywide vacancy fell 20 basis points (bps) to 9.3% Crane; no matter where one looks, the skyline is from 1Q 2017, and the average annual asking rate filled with these construction machines building rose $0.94 per sq. ft. from 1Q 2017 to $34.83 per sq. up the city even further. With approximately 2.0 ft., tying the record high rate set in 4Q 2016. million sq. ft. of new office space currently under Availability ticked downwards, falling 10 bps to construction, developers are working diligently to 12.3% from 1Q 2017. fill demand, all the while forever altering the Austin horizon. The Austin economy continued to hum along during 2Q 2017, as the unemployment rate fell to During 2Q 2017, absorption activity soared from 3.3% in April 2017, close to the 15-year low of the previous quarter, with more than 600,000 sq. ft. 3.1%. Job growth has remained subpar at 2.6%, being occupied over the past 90 days. The while the business-cycle index expanded at 5.7%, technology sector rebounded from the low activity 30 bps below the long-term growth rate of 6.0%. of 1Q 2017, with 48% of new leases signed during As the metro continues to expand and attract 2Q 2017 being tech related. Business and financial corporate relocations, Austin must address the services accounted for 25% of new leases, while the affordability and transportation issues that have engineering sector saw no new activity this quarter. gripped the area, or potentially face an economic Healthcare activity jumped slightly, accounting for cooling in the near future. 6% of new leases.

Figure 2: Austin Office Market Statistics

Net Total Total Average Under Q2 2017 YTD 2017 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,481,705 8.0 11.0 46.04 682,344 0 92,240 75,903 Class A 7,566,810 7.4 10.2 53.91 682,344 0 31,618 110,755 Class B 2,471,373 9.9 13.5 37.33 0 0 65,358 (45,980) Northwest 14,104,669 10.1 13.0 34.43 405,863 0 117,515 155,445 Class A 8,692,016 9.4 12.0 37.69 405,863 0 160,782 190,209 Class B 5,244,999 11.5 15.2 31.74 0 0 (41,893) (34,391) Far Northwest 4,259,577 7.3 9.3 29.79 245,567 0 79,671 89,706 Class A 2,823,233 8.1 10.7 32.72 0 0 36,224 68,523 Class B 1,343,485 5.8 6.6 26.92 245,567 0 45,847 23,583 North Central 3,243,171 7.3 10.4 26.10 0 0 9,592 94,476 Class A 687,005 5.5 15.6 35.77 0 0 22,075 29,742 Class B 2,215,215 8.3 9.6 25.00 0 0 (17,210) 61,821 Round Rock 679,937 10.0 12.1 25.34 59,476 0 (9,506) (19,886) Class A 33,634 28.8 28.8 34.00 0 0 (1,317) (1,870) Class B 604,185 8.8 11.3 25.11 59,476 0 (8,189) (13,273) East 2,293,065 9.7 11.0 26.86 259,365 22,760 46,295 71,952 Class A 779,643 6.0 6.0 33.71 213,711 0 65,222 95,482 Class B 1,248,553 12.7 15.1 26.37 45,654 22,760 (17,637) (26,721) South 2,038,263 15.7 16.1 27.22 149,246 0 36,205 (8,025) Class A 297,466 7.3 7.3 32.61 149,246 0 2,231 (6,593) Class B 1,318,677 21.8 22.3 28.49 0 0 26,716 (9,980) Southwest 10,834,072 9.4 14.0 34.17 142,867 248,964 233,590 237,761 Class A 7,541,623 9.6 15.3 38.26 115,668 248,964 202,096 194,405 Class B 3,145,409 8.9 11.0 29.96 27,199 0 30,821 45,569 Austin Total 47,934,459 9.3 12.3 34.83 1,944,728 271,724 605,602 697,332

Class A 28,421,430 8.6 12.2 41.19 1,566,832 248,964 518,931 680,653 Class B 17,591,896 10.7 13.2 30.17 377,896 22,760 83,813 628 Although Class C is not shown, totals are inclusive of all classes of data. Source: CBRE Research, Q2 2017.

Figure 3: Significant Leases / Sales of Q2 2017 Figure 4: Q2 2017 Signed Leases by Industry

Lease (Tenant) Property Total SF 14% HomeAway Domain 11 315,000 6% AlienVault, Inc. Encino Trace I 30,000 6% 48% Cycle Solutions, Inc. Uplands Corporate Center 23,767 10% Sale (Building) Address Total SF 16% The Campus at Arboretum, 10415 Morado Circle 318,226 Bldgs. I-V Technology Financial Services Business Services Capital Ridge 320 S Capital of Texas Hwy 217,490 Engineering Healthcare Other Source: CBRE Research, Q2 2017. Source: CBRE Research, Q2 2017.

Figure 5: Historical Market Statistics

2010 2011 2012 2013 2014 2015 2016 YTD 2017 CBD Absorption (Net SF) 190,764 167794 177,023 64,099 369,822 649,300 97,639 75,903 Asking Rent, Avg. Annual 33.33 34.07 36.08 38.15 40.10 41.33 47.67 46.04 Delivered Construction (SF)0000167,871 557,470 195,863 500,436 Vacancy Rate (%) 15.9 13.3 12.0 12.0 9.4 7.1 7.8 8.0 NORTHWEST Absorption (Net SF) 14,469 1,103,368 677,714 179,614 224,246 669,701 286,950 155,445 Asking Rent, Avg. Annual 24.91 25.37 25.83 26.28 29.48 31.96 32.80 34.43 Delivered Construction (SF)0000143,331 591,973 372,235 291,058 Vacancy Rate (%) 27.6 20.2 15.3 10.4 9.4 8.8 8.8 10.1 FAR NORTHWEST * Absorption (Net SF) N/A N/A N/A 366,763 79,360 198,389 336,470 89,706 Asking Rent, Avg. Annual N/A N/A N/A 27.85 28.95 30.95 30.62 29.79 Delivered Construction (SF) N/A N/A N/A 0 0 128,700 0 0 Vacancy Rate (%) N/A N/A N/A 12.2 13.8 9.5 9.4 7.3 NORTH CENTRAL Absorption (Net SF) 122,855 103,556 (10,917) 90,741 222,683 90,066 251,093 94,476 Asking Rent, Avg. Annual 18.42 21.12 21.63 23.14 22.89 27.29 25.95 26.10 Delivered Construction (SF)00000214,962 46,000 0 Vacancy Rate (%) 29.2 21.6 23.0 23.8 15.4 13.1 10.2 7.3 ROUND ROCK Absorption (Net SF) (7,999) 37,083 8,592 26,097 41,367 19,892 18,801 (19,886) Asking Rent, Avg. Annual 24.52 23.02 21.17 22.67 23.77 24.99 22.91 25.34 Delivered Construction (SF)00000059,0430 Vacancy Rate (%) 47.0 21.5 19.3 15.1 9.8 6.6 7.0 10.0 EAST Absorption (Net SF) (26,865) (32,154) 387,386 1,722 49,392 58,736 428,135 71,952 Asking Rent, Avg. Annual 16.71 16.19 16.38 17.20 16.71 19.55 20.13 26.86 Delivered Construction (SF) 0 0 0 30,451 0 191,990 199,408 109,726 Vacancy Rate (%) 29.4 27.6 12.7 16.7 14.9 17.9 6.6 9.7 SOUTH Absorption (Net SF) 31,047 52,136 83,355 25,359 70,143 33,337 158,472 (8,025) Asking Rent, Avg. Annual 18.01 15.13 15.38 15.13 14.73 15.02 24.68 27.22 Delivered Construction (SF)024,4400000057,500 Vacancy Rate (%) 25.3 23.6 21.0 19.9 16.3 14.4 16.0 15.7 SOUTHWEST Absorption (Net SF) 295,845 367,752 205,677 149,911 101,327 419,723 159,982 237,761 Asking Rent, Avg. Annual 25.76 25.47 26.80 29.83 31.78 34.34 35.99 34.17 Delivered Construction (SF) 0 0 0 92,008 76,500 1,062,477 0 322,928 Vacancy Rate (%) 16.0 12.3 9.9 8.4 8.4 10.3 9.7 9.4 AUSTIN TOTAL Absorption (Net SF) 620,116 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 697,332 Asking Rent, Avg. Annual 25.27 25.35 26.24 28.15 29.56 31.81 34.83 34.83 Delivered Construction (SF) 0 24,440 0 122,459 387,702 2,747,572 872,549 1,281,648 Vacancy Rate (%) 23.1 17.5 14.2 12.1 10.6 9.6 9.2 9.3 Source: CBRE Research, Q2 2017. *Submarket created in 2013

Figure 6: Net Absorption and Occupancy Net Absorption (MSF) Occupancy (%) 4 100 95 2 90 85 1 80 75 (1) 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net Absorption Occupancy Source: CBRE Research, Q2 2017.

CONTACTS

Robert C. Kramp Director, Research & Analysis [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Luke Goebel Research Coordinator +1 512 499 4939 [email protected]

CBRE OFFICES

CBRE Austin 100 Congress Ave., Suite 500 Austin, TX 78701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q1 2017 Construction, new deliveries to set market pace for 2017

9.5% 1,772,283 SF 1,009,924 SF 91,730 SF $33.89 PSF

*Arrows indicate change from previous quarter. Figure 1: Historical Construction and Deliveries MSF 3.0 2.5 2.0 1.5 1.0 0.5

0.0

Q1 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 Under Construction Delivered Construction Source: CBRE Research, Q1 2017.

Figure 2: Austin Office Market Statistics

Net Total Total Average Under Q1 2017 YTD 2017 Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption CBD 10,447,213 7.9 10.2 49.32 664,317 500,436 (16,337) (16,337) Class A 7,551,676 6.8 8.4 57.24 664,317 500,436 79,137 79,137 Class B 2,471,373 12.5 14.6 31.75 0 0 (111,338) (111,338) Northwest 13,944,004 9.7 12.8 33.50 405,863 291,058 37,930 37,930 Class A 8,688,514 9.1 11.3 35.36 405,863 291,058 29,427 29,427 Class B 5,087,836 11.0 15.6 30.95 0 0 7,502 7,502 Far Northwest 4,259,577 9.2 12.8 31.36 0 0 10,035 10,035 Class A 2,823,233 9.3 13.2 35.11 0 0 32,299 32,299 Class B 1,343,485 9.2 12.5 27.55 0 0 (22,264) (22,264) North Central 3,247,647 7.6 9.8 26.49 0 0 84,884 84,884 Class A 687,005 8.7 14.3 36.66 0 0 7,667 7,667 Class B 2,215,215 7.6 9.1 23.87 0 0 79,031 79,031 Round Rock 679,937 8.6 10.7 20.96 0 0 (10,380) (10,380) Class A 33,634 24.9 24.9 0 0 0 (553) (553) Class B 604,185 7.5 9.9 20.96 0 0 (5,084) (5,084) East 2,270,305 7.0 9.1 20.17 215,600 86,966 25,657 25,657 Class A 779,643 1.2 1.2 26.25 132,000 57,761 30,260 30,260 Class B 1,225,793 10.9 14.7 20.90 83,600 29,205 (9,084) (9,084) South 2,038,263 17.5 17.7 25.15 90,500 57,500 (44,230) (44,230) Class A 297,466 8.1 8.1 31.53 90,500 0 (8,824) (8,824) Class B 1,318,677 23.8 24.1 24.44 0 57,500 (36,696) (36,696) Southwest 10,585,108 10.8 15.0 36.74 396,003 73,964 4,171 4,171 Class A 7,292,659 11.2 16.8 38.12 357,555 73,964 (7,691) (7,691) Class B 3,145,409 9.9 11.0 31.96 38,448 0 14,748 14,748 Austin Total 47,472,054 9.5 12.4 33.89 1,772,283 1,009,924 91,730 91,730

Class A 28,153,830 8.6 11.8 37.47 1,650,235 923,219 161,722 161,722 Class B 17,411,973 11.3 13.9 29.32 122,048 86,705 (83,185) (83,185)

Source: CBRE Research, Q1 2017.

Figure 3: Significant Leases / Sales of Q1 2017 Figure 4: Q1 2017 Signed Leases by Industry

Lease (Tenant) Address Total SF 8% Newgistics 7171 Southwest Parkway 43,000 24% 20% Gerson Lehrman Group 301 Congress Avenue 42,000

Spectrum 13620 Ranch Road 620 29,000 4% 4% 18% Sale (Building) Address Total SF 22% Chase Tower 221 W 6th Street 404,713 Technology Financial Services Business Services Quarry Oaks 1 10900 Stonelake Boulevard 290,000 Engineering Healthcare Other Energy Source: CBRE Research, Q1 2017. Source: CBRE Research, Q1 2017.

Figure 5: Historical Market Statistics

2010 2011 2012 2013 2014 2015 2016 2017 YTD CBD Absorption (Net SF) 190,764 167794 177,023 64,099 369,822 649,300 97,639 (16,337) Asking Rent, Avg. Annual 33.33 34.07 36.08 38.15 40.10 41.33 47.67 49.32 Delivered Construction (SF) 0 0 0 0 167,871 557,470 195,863 500,436 Vacancy Rate (%) 15.9 13.3 12.0 12.0 9.4 7.1 7.8 7.9 NORTHWEST Absorption (Net SF) 14,469 1,103,368 677,714 179,614 224,246 669,701 286,950 37,930 Asking Rent, Avg. Annual 24.91 25.37 25.83 26.28 29.48 31.96 32.80 33.50 Delivered Construction (SF) 0 0 0 0 143,331 591,973 372,235 291,058 Vacancy Rate (%) 27.6 20.2 15.3 10.4 9.4 8.8 8.8 9.5 FAR NORTHWEST * Absorption (Net SF) N/A N/A N/A 366,763 79,360 198,389 336,470 10,035 Asking Rent, Avg. Annual N/A N/A N/A 27.85 28.95 30.95 30.62 31.36 Delivered Construction (SF) N/A N/A N/A 0 0 128,700 0 0 Vacancy Rate (%) N/A N/A N/A 12.2 13.8 9.5 9.4 9.2 NORTH CENTRAL Absorption (Net SF) 122,855 103,556 (10,917) 90,741 222,683 90,066 251,093 84,884 Asking Rent, Avg. Annual 18.42 21.12 21.63 23.14 22.89 27.29 25.95 26.49 Delivered Construction (SF) 0 0 0 0 0 214,962 46,000 0 Vacancy Rate (%) 29.2 21.6 23.0 23.8 15.4 13.1 10.2 7.6 ROUND ROCK Absorption (Net SF) (7,999) 37,083 8,592 26,097 41,367 19,892 18,801 (10,380) Asking Rent, Avg. Annual 24.52 23.02 21.17 22.67 23.77 24.99 22.91 20.96 Delivered Construction (SF) 0 0 0 0 0 0 59,043 0 Vacancy Rate (%) 47.0 21.5 19.3 15.1 9.8 6.6 7.0 8.6 EAST Absorption (Net SF) (26,865) (32,154) 387,386 1,722 49,392 58,736 428,135 25,657 Asking Rent, Avg. Annual 16.71 16.19 16.38 17.20 16.71 19.55 20.13 20.17 Delivered Construction (SF) 0 0 0 30,451 0 191,990 199,408 86,966 Vacancy Rate (%) 29.4 27.6 12.7 16.7 14.9 17.9 6.6 7.0 SOUTH Absorption (Net SF) 31,047 52,136 83,355 25,359 70,143 33,337 158,472 (44,230) Asking Rent, Avg. Annual 18.01 15.13 15.38 15.13 14.73 15.02 24.68 25.15 Delivered Construction (SF) 0 24,440 0 0 0 0 0 57,500 Vacancy Rate (%) 25.3 23.6 21.0 19.9 16.3 14.4 16.0 17.5 SOUTHWEST Absorption (Net SF) 295,845 367,752 205,677 149,911 101,327 419,723 159,982 4,171 Asking Rent, Avg. Annual 25.76 25.47 26.80 29.83 31.78 34.34 35.99 36.74 Delivered Construction (SF) 0 0 0 92,008 76,500 1,062,477 0 73,964 Vacancy Rate (%) 16.0 12.3 9.9 8.4 8.4 10.3 9.7 10.8 AUSTIN TOTAL Absorption (Net SF) 620,116 1,799,535 1,528,830 904,306 1,158,340 2,139,144 1,737,542 91,730 Asking Rent, Avg. Annual 25.27 25.35 26.24 28.15 29.56 31.81 34.83 33.89 Delivered Construction (SF) 0 24,440 0 122,459 387,702 2,747,572 872,549 1,009,924 Vacancy Rate (%) 23.1 17.5 14.2 12.1 10.6 9.6 9.2 9.5 Source: CBRE Research, Q1 2017. *Submarket created in 2013

Figure 6: Unemployment and Jobs Net Absorption (MSF) Occupancy (%) 4 100 95 90 2 85 80 75 70 1 65 60 55 (1) 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net Absorption Occupancy Source: CBRE Research, Q1 2017.

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CBRE OFFICES

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 9.2% $34.83/SF 491,623 SF 2.6 MSF

Figure 1: Deliveries vs. Vacancy *Arrows indicate change from previous quarter. Sq. Ft. (000’s) % 1,000 13 800 12 600 11 400 10 200 9 0 8 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Source: CBRE Research, Q4 2016. Deliveries Vacancy Despite what seemed to be nonstop turbulence The end of 2016 saw another uptick in the citywide during 2016 on the global and national level, average asking rent. Class A landlords hit a new Austin’s office market provided a consistent record high of $38.84 per sq. ft., a $0.55 increase narrative that correlates with the general economy from Q3 2016. While hardy demand has certainly of the Live Music Capital of the World: sustained helped rents to this ascension, landlords have also growth and continued expansion. Occupier been facing ever increasing operating expenses. demand topped out over 1.7 million sq. ft. and CBRE Research expects robust demand coupled with citywide average asking rents hit a new historic increasing property values and utility costs to high of $34.83 per sq. ft. continue this drumbeat into 2017 and beyond. The top leasing activity that occurred during the fourth quarter came from eBay, which renewed its Other quarterly highlights include Austinites lease for more than 214,000 sq. ft., and from passing a $720 million mobility bond in November MedSpring, which renewed its lease for more than that is intended to improve select transportation 100,000 sq. ft. corridors throughout the city. The bond will also increase and improve upon existing urban trails, During the fourth quarter, the Central Business expand sidewalks, and increase bicycle lanes. The District (CBD) became awash with curiosity and bond is intended to alleviate traffic conditions in general excitement as eight developers submitted bids to build one of Austin’s most high-profile Austin by encouraging residents to utilize infill parcels. The site is a 77,215 sq. ft. surface alternative means of transportation. With more new parking lot and one of the last vacant parcels in the developments than ever before catering to the “live- CBD outside the Capitol View Corridor and zoned work-play” mentality, office occupiers will be able to for about 2 million square feet of development. more easily attract the growing STEM (science, Conceivably, it could eventually house the tallest technology, engineering, and math) labor force that building in Austin. CBRE has been retained to desires to commute to work utilizing alternative market the deal and as such, we will follow the means. With the bond passage, Austin has primed progress of this development with the absolute itself for another expansionary year in 2017. diligence it deserves.

Figure 2: Austin Office Market Statistics

Submarket Net Total Total Average Q4 2016 YTD Rentable Vacancy Availability Asking Net Net (SF) (%) Rate (%) Rate ($) Absorption Absorption CBD 9,946,701 7.8 9.7 47.67 (106,896) 118,653 Class A 7,051,164 7.9 9.5 51.06 (138,035) 131,566 Class B 2,471,373 7.4 8.8 42.11 34,412 7,102 Northwest 13,658,281 8.8 11.9 32.80 (20,716) 286,950 Class A 8,402,791 7.5 10.6 34.28 26,273 412,653 Class B 5,087,836 11.2 14.4 30.50 (48,686) (126,362) Far Northwest 4,254,345 9.4 12.5 30.62 31,051 336,470 Class A 2,823,233 10.5 13.6 31.72 (26,625) 268,242 Class B 1,338,253 7.6 10.7 27.00 56,910 65,868 North Central 3,247,647 10.2 12.4 25.95 (6,310) 251,093 Class A 687,005 9.9 16.3 35.57 (967) 195,065 Class B 2,215,215 11.1 12.4 23.58 (3,460) 39,993 Round Rock 679,937 7.0 9.1 22.91 24,688 18,801 Class A 33,634 23.3 23.3 25.00 0 (7,825) Class B 604,185 6.6 9.0 23.23 24,688 26,626 East 2,333,164 6.6 7.0 20.13 285,117 429,699 Class A 742,445 1.0 1.0 26.25 305,757 384,465 Class B 1,325,850 9.4 10.2 20.88 (15,264) 46,022 South 1,951,558 16.0 16.4 24.68 215,888 178,724 Class A 297,466 5.1 5.9 31.00 (3,889) (10,852) Class B 1,231,972 22.5 22.7 24.29 218,754 184,606 Southwest 10,539,771 9.7 13.8 35.99 68,801 159,352 Class A 7,218,695 9.4 15.9 37.75 171,291 272,862 Class B 3,174,036 10.6 9.1 31.33 (105,472) (109,801) Totals 46,357,104 9.2 11.8 34.83 491,623 1,779,742 Although Class C is not individually listed, totals are inclusive of all classes of data. Source: CBRE Research, Q4 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry Lease (Tenant) Address Total SF 13% eBay, Inc 7700 W Parmer Ln 214,691 2% MedSpring (Fresenius) 3711 S MoPac Expy 102,587 7% 34% 22% Indeed.com, Inc 7501 N Capital of Texas Hwy 88,000 Sale (Buyer) Property Name Total SF Cousins Properties (Atlanta) One Eleven Congress Plaza 548,823 29% 15% Cousins Properties (Atlanta) San Jacinto 410,248 TIER REIT (Dallas) Domain 2, Domain 7 336,638 Tech Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q4 2016. Source: CBRE Research, Q4 2016.

YEAR END RENTS REACH NEW HEIGHTS Figure 5: Lease Rates During 2016, rents continued to climb to historic 40 heights, peaking at $34.83 per sq. ft. at years end. 35 While robust demand has certainly driven landlords 30 to increase their average asking rents, ever 25 increasing operating expenses have played as just an 20 important role in pushing rents higher. 15 Approximately 872,000 sq. ft. of new construction Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 was delivered to the market in 2016, which helped Class A Class B raise Class A rents to $38.84 per sq. ft., up from Source: CBRE Research, Q4 2016. $38.29 per sq. ft. last quarter. Figure 6: Net Absorption AN EXPANDING SKYLINE (000’s) For the 24rd consecutive quarter, Austin saw positive 800 net absorption of 491,623 sq. ft., bringing the 2016 600 total to 1,779,742 sq. ft. The CBD, East, Northwest and Southwest submarkets not only saw the greatest 400 absorption activity, but also saw the largest amount 200 of new construction starts. The downtown Austin skyline continued to morph and expand throughout 0 2016, with new high rise buildings burst from the Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 ground and scrape the sky. Source: CBRE Research, Q4 2016.

VACANCY/AVAILABILITY FALL TO NEW LOWS Figure 7: Vacancy (%) Year-over-year vacancy fell 40 basis points in 2016 to 14 9.2%, down from 9.6% in 2015. Overall availability fell 320 basis points from 2015 to 11.8%. Space user 12 demand has remained hot, which has allowed the market to continue absorbing existing product, 10 pressing vacancy and availability to fall. The CBD, Northwest, and Southwest submarkets remain the 8 most sought after for both users and developers. Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Source: CBRE Research, Q4 2016. OPTIMISTIC OUTLOOK FOR AUSTIN Two buildings delivered in the fourth quarter for a Figure 8: Construction Completions total of 224,817 sq. ft.; a market uptick from Q3 2016 delivery of 79,634 sq. ft. 2016 saw the (MSF) expansionary market cycle continue as space users 3 continued to absorb the 872,549 sq. ft. of new construction that was delivered to the market 2 during 2016. Leading into 2017, there are 21 office projects under construction across five submarkets 1 for approximately 2.6 million sq. ft. Developers and investors clearly remain optimistic about the future 0 2009 2010 2011 2012 2013 2014 2015 2016 of the office market and the influx of new companies requiring space. Source: CBRE Research, Q4 2016.

CONTACTS

Robert C. Kramp Director, Research & Analysis [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Luke Goebel Research Coordinator +1 512 499 4939 [email protected]

CBRE OFFICES

Austin Office 100 Congress Ave., Suite 500 Austin, TX 75701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

9.3% $34.01/SF 502,730 SF 2.1 MSF

Figure 1: Deliveries vs. Vacancy *Arrows indicate change from previous quarter. Sq. Ft. (000’s) % 1,000 13 800 12 600 11 400 10 200 9 0 8 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Source: CBRE Research, Q3 2016. Deliveries Vacancy

Figure 2: Austin Office Market Statistics

Submarket Net Total Total Average Q3 2016 YTD Rentable Vacancy Availability Asking Net Net (SF) (%) Rate (%) Rate ($) Absorption Absorption CBD 9,953,924 6.7 8.1 47.00 111,343 225,549 Class A 7,058,387 6.0 7.2 50.89 113,896 269,601 Class B 2,471,373 8.0 9.3 40.20 -1,735 -27,310 Northwest 13,659,881 8.7 10.9 32.59 239,758 307,666 Class A 8,402,791 7.9 10.6 34.67 322,057 386,380 Class B 5,089,436 10.2 11.7 29.43 -79,443 -77,676 Far Northwest 4,254,055 10.1 11.0 30.09 68,792 305,419 Class A 2,822,943 9.5 9.5 30.57 71,209 294,867 Class B 1,338,253 11.8 14.4 29.46 -8,377 8,958 North Central 3,247,647 10.0 12.5 26.33 -2,397 257,403 Class A 687,005 9.7 19.1 33.51 2,563 196,032 Class B 2,215,215 11.0 11.6 23.79 -4,433 43,453 Round Rock 654,528 7.2 9.4 24.83 -13,110 -5,887 Class A 33634 23.3 23.3 25.00 -7825 -7,825 Class B 578,776 6.8 9.3 24.80 -5,285 1,938 East 2,133,756 11.2 11.7 22.02 24,459 144,582 Class A 543,037 20.9 20.9 25.57 -15,495 78,708 Class B 1,325,850 8.3 9.1 20.09 31,234 61,286 South 1,968,391 15.7 15.6 20.8 -27,885 -35,118 Class A 297,466 3.8 4.6 29.45 0 -6,963 Class B 1,248,805 22.2 22.3 21.67 -31,494 -34,148 Southwest 10,484,922 10.4 13.8 36.33 101,770 90,551 Class A 7,218,695 11.7 15.9 38.05 88,389 101,571 Class B 3,119,187 7.4 9.1 30.82 14,485 -4,329 Totals 46,357,104 9.3 11.0 34.01 502,730 1,290,165 Although Class C is not individually listed, Totals are inclusive of all classes of data Source: CBRE Research, Q3 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry Lease (Tenant) Address Total SF 11% Samsung 3900 N Capital of Texas Hwy 112,000 3% Cadence Design Systems 12301 Research Blvd 68,245 6% 33% 22% WeWork 11801 Domain Blvd 61,245 Sale (Buyer) Property Name Total SF Invesco RE 100 Congress 411,536 30% 16% Partners Group (Switzerland) Research Park I & II 271,882 KBS Realty Advisors Stonebridge Plaza I & II 386,101 Tech Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q3 2016. Source: CBRE Research, Q3 2016.

RATES CONTINUE THEIR RECORD-SETTING CLIMB Figure 5: Lease Rates

40 35 30 25 20 15 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Class A Class B Source: CBRE Research, Q3 2016.

“THE USUAL SUSPECTS” Figure 6: Net Absorption

800.0

600.0

400.0

200.0

0.0 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Source: CBRE Research, Q3 2016. VACANCY/AVAILABILITY FALL TO NEW LOWS Figure 7: Vacancy

8 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

OPTIMISTIC OUTLOOK FOR AUSTIN Source: CBRE Research, Q3 2016.

Figure 8: Construction Completions

(MSF) 3

0 2009 2010 2011 2012 2013 2014 2015 YTD 2016

Source: CBRE Research, Q3 2016.

CONTACTS

CBRE OFFICES

10.4% $33.22/SF 300,427 SF 1.6 MSF

Figure 1: Deliveries vs. Vacancy *Arrows indicate change from previous quarter.

Sq. Ft. % (Millions) 1.0 13

0.8 12

0.6 11

0.4 10

0.2 9

0.0 8 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Source: CBRE Research, Q2 2016. Deliveries Vacancy Rate

Figure 2: Austin Office Market Statistics

Submarket Net Total Total Average Q2 2016 YTD Rentable Vacancy Availability Asking Net Net (SF) (%) Rate (%) Rate ($) Absorption Absorption CBD 9,954,349 7.8 10.2. 44.83 25,998 93,192 Class A 7,058,812 7.6 9.4 47.93 85,832 155,705 Class B 2,471,373 7.9 11.2 38.33 (36,082) (25,575) Northwest 13,668,581 10.4 17.2 32.99 59,116 67,908 Class A 8,402,791 11.7 20.7 34.62 42,331 64,323 Class B 5,098,136 8.6 11.9 29.44 14,967 1,767 Far Northwest 4,446,051 11.2 13.2 30.05 108,843 236,627 Class A 3,016,637 11.3 13.9 30.94 96,057 223,658 Class B 1,336,555 11.2 11.4 28.38 12,786 17,355 North Central 3,201,647 10.1 14.8 28.01 129,240 259,800 Class A 641,005 10.8 19.6 36.48 90,231 193,469 Class B 2,215,215 10.8 14.4 23.72 27,033 47,884 Round Rock 620,894 5.5 8.3 24.55 (3,909) 7,223 Class A 0 0 0 0 0 0 Class B 578,776 5.9 8.9 24.55 (3,909) 7,223 East 2,133,756 12.3 20.6 21.89 90,274 119,509 Class A 543,037 18.0 18.0 25.50 94,203 94,203 Class B 1,325,850 10.6 23.9 21.23 (3,147) 30,052 South 1,746,355 16.0 18.0 16.48 (18,382) (29,531) Class A 297,466 3.8 5.4 25.94 (6,963) (6,963) Class B 1,026,769 23.9 26.0 15.30 (5,855) (2,654) Southwest 10,484,922 11.4 19.5 35.74 (90,753) (10,589) Class A 7,218,659 13.0 16.8 37.18 (46,344) 13,812 Class B 3,119,187 7.8 11.0 30.36 (42,252) (18,814) Totals 46,256,555 10.4 15.1 33.22 300,427 743,189 Although Class C is not individually listed, Totals are inclusive of all classes of data Source: CBRE Research, Q2 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry

Lease (Tenant) Address Total SF Gerson Lehrman Group 301 Congress 41,803 17% Aristocrat Technologies 11801 Domain Dr. 24,412 34% 9% People Admin 807 Las Cimas Pkwy. 24,166 Sale (Buyer) Property Name Total SF 10% 5% Plaza on the Lake One LLC Plaza on the Lake I & II 236,561 25% Capridge Partners Lakewood on the Park B&C 180,558

Cielo Realty Partners 900 Congress 56,391 Tech Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q2 2016. Source: CBRE Research, Q2 2016.

NEW QUARTER, NEW RECORD HIGH RATES Figure 5: Lease Rates

20 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Class A Class B Source: CBRE Research, Q2 2016.

UNLIKELY SUSPECTS FOR ABSORPTION Figure 6: Net Absorption

0.8

0.6

0.4

0.2

0.0 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Net Absorption Source: CBRE Research, Q2 2016. VACANCY/AVAILABILITY UP WITH NEW SUPPLY Figure 7: Vacancy & Availability

9 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Total Vacancy % Availability %

COMPLETIONS FOLLOWED WITH NEW STARTS Source: CBRE Research, Q2 2016.

Figure 8: Construction Completions

(MSF) 3

0 2009 2010 2011 2012 2013 2014 2015 YTD 2016

Construction Completions Source: CBRE Research, Q2 2016.

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CBRE OFFICES

10.1% $32.65 $/SF 442,762 Sq. Ft. 1.6 MSF

Figure 1: Deliveries vs. Vacancy *Arrows indicate change from previous quarter.

Sq. Ft. % (Millions) 1 13

0.8 12

0.6 11

0.4 10

0.2 9

0 8 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016. Deliveries Vacancy Rate

Figure 2: Austin Office Market Statistics

Submarket Net Total Total Average Q4 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 9,732,884 5.9 11.4. 44.61 67,194 67,194 Class A 6,862,949 5.8 10.6 47.52 69,873 69,873 Class B 2,445,771 6.3 12.6 37.62 -10,507 -10,507 Northwest 13,593,777 10.4 16.9 32.18 8,792 8,792 Class A 8,327,987 11.4 20.2 33.77 21,992 21,992 Class B 5,098,136 8.9 12.0 28.84 -13,200 -13,200 Far Northwest 4,446,051 13.7 13.8 30.75 127,784 127,784 Class A 3,016,637 14.4 13.6 33.47 127,601 127,601 Class B 1,336,555 12.1 14.2 28.65 4,549 4,549 North Central 3,201,647 14.1 20.9 26.74 130,560 130,560 Class A 641,005 24.9 29.2 37.15 103,238 103,238 Class B 2,215,215 12.0 19.5 23.11 20,853 20,853 Round Rock 620,894 4.8 8.4 24.91 11,132 11,132 Class A 0 N/A N/A N/A 0 0 Class B 578,776 5.2 9.0 24.91 11,132 11,132 East 213,3756 16.6 18.6 21.33 28,285 28,285 Class A 543,037 35.4 18.0 25.50 0 0 Class B 1,325,850 10.4 20.2 20.46 33,199 33,199 South 1,746,355 15.0 17.2 15.48 -11,149 -11,149 Class A 297,466 1.4 3.8 20.37 0 0 Class B 1,026,769 23.3 25.6 14.77 -3,201 -3,201 Southwest 10,484,922 9.3 14.6 35.11 80,164 80,164 Class A 7,218,659 10.5 16.8 36.65 60,156 60,156 Class B 3,119,187 6.5 9.6 29.44 23,438 23,438 Totals 45,960,286 10.1 15.1 32.65 442,762 442,762 Although Class C is not included, Totals are inclusive of all classes of data Source: CBRE Research, Q1 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry

Lease (Tenant) Address Total SF 14% Houghton Mifflin Harcourt 1300 W. Loius Henna Blvd. 87,745 22% 5% Navitus 12515 Research 25,937 2% Forcepoint 10900 Stonelake Blvd. 60,000 8% Sale (Buyer) Property Name Total SF

Lionstone Investments University Park 204,297 49% OakPoint Donley Plaza 67,000

Valor Capital Partners Briarcroft Building 64,010 Tech Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q1 2016. Source: CBRE Research, Q1 2016.

Q1 2016 CBRE Research © 201 CBRE, Inc. | 2 MARKETVIEW AUSTIN OFFICE

TAXES & LEASE RATES: INCREASES COME IN Q1 Figure 5: Lease Rates Asking Rate ($/SF) 40 $37.08

30 Class A $26.13 Class B 25

20 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q4 2015.

POSITIVE ABSORPTION TURNS “21” Figure 6: Net Absorption Sq. Ft. (000’s) 800

600 442K 400

200

0 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016.

VACANCY/AVAILABILITY UP WITH NEW SUPPLY Figure 7: Vacancy & Availability

% Total Availability Rate vs. Total Vacancy Rate 17 15.1%

13 10.1% 11

9 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016. TENANT WANTED: NEW SUPPLY HAS VACANCY

Figure 8: Construction Completions Sq. Ft. (Millions) 3

0 2009 2010 2011 2012 2013 2014 2015 YTD 2016 Source: CBRE Research, Q1 2016.

CONTACTS

CBRE OFFICES

Austin Office, Q4 2015 M3: Market’s multiple milestones stretched 2015 finish line.

9.6 % $31.81/SF 557,940 SF 657,307 SF

*Arrows indicate change from previous quarter.

Figure 1: Asking Rates, Gross Avg. Annual and Vacancy Rates

$/SF Vacancy Rate (%) 34 26

24 32 22

30 20

18 28 16

26 14

12 24 10

22 8

Q1 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4

Asking Rates Total Vacancy Rate Source:Source: CBRE Research, CBRE Research, Q4 2014. Q4 2015

• The Austin market delivered 657,307 sq. ft. of new product to the market in Q4 2015, bringing the year- to-date total to over 2.7 million sq. ft. • Going west: ending the year with a robust quarter for net absorption of 557,940 sq. ft. with 3/4th of the demand (405,262 sq. ft.) in in the Northwest and Southwest submarkets. • Average full service asking rents climbed to a new high stepping to citywide ascent at $31.81per sq. ft. per year.

MARKETVIEW AUSTIN OFFICE

Figure 2: Market Statistics

Avg. Direct Asking 2015 Lease Rates Rentable Vacancy Net 2015 Net Delivered Under ($/SF/YR) Area Vacant Rate Absorption Absorption Construction Construction Market (SF) (SF) (%) (SF) (SF) (SF) (SF) Class A Class B CBD 9,732,884 687,955 7.1 83,341 649,300 557,470 911,022 43.64 36.52 Northwest 13,296,346 1,175,572 8.8 274,207 669,701 591,973 728,911 34.14 27.59 Far Northwest 4,239,279 400,626 9.5 37,105 198,389 128700 - 32.86 27.76 North Central 3,201,647 418,399 13.1 21,833 90,066 214,962 46,000 39.06 21.95 Round Rock 620,894 41,207 6.6 9,698 19,892 - - N/A 24.99 East 2,133,756 381,511 17.9 9,049 58,736 191,990 131,806 N/A 22.57 South 1,746,355 250,858 14.4 -8,348 33,337 - - 20.37 14.59 Southwest 10,484,922 1027527 9.8 131,055 419,723 1,062,477 87,748 35.85 28.89 Totals 45,456,083 4,383,655 9.6 557,940 2,139,144 2,747,572 1,905,487 35.81 25.54

Source: CBRE Research, Q4 2015.

Figure 3: Net Absorption Net Absorption (MSF) 1.0 0.8 0.6 0.4 0.2 0.0 (0.2) (0.4) (0.6) (0.8)

(1.0)

Q1 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4

Class A Class B Overall Total Net Absorption

Source:Source: CBRECBRE Research,Research, Q4Q4 2015.2014.

Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) 2.5 26

2.0 24 22 1.5 20 1.0 18 0.5 16 0.0 14 (0.5) 12

(1.0) 10

(1.5) 8 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q4 2015.

OFFICE ASKING RATES

Figure 5: Asking Rates, Gross Avg. Annual

$/SF 38

18 2007 2008 2009 2010 2011 2012 2013 2014 2015

Class A Class B Market Average Asking

Source: CBRE Research, Q4 2015.

OFFICE PRODUCT Figure 6: Construction

(MSF)

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Under Construction Delivered Construction

Source: CBRE Research, Q4 2015.

Figure 7: Unemployment UNEMPLOYMENT % 11

2 2007 2008 2009 2010 2011 2012 2013 2014 2015 Austin - Round Rock - San Marcos MSA Texas US

Source: CBRE Research, Q4 2015.

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Austin Office, Q3 2015 Market Posts Highest Net Absorption Since 2012

Vacancy Rate Avg. Asking Rate Net Absorption Completions 10.9 % 31.53 $/SF 649,339 SF 339,890 SF

*Arrows indicate change from previous quarter.

Figure 1: Asking Rates, Gross Avg. Annual and Vacancy Rates $/SF Vacancy Rate (%) 34 26

24 32

30 20

28 18

16 26

24 12

22 10 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Asking Rates Total Vacancy Rate Source: CBRE Research, Q3 2015.

With one quarter to go in the year, the Austin office • The Austin office market posted 649,339 sq. ft. of positive net absorption for the quarter, the highest market is poised to set a new all-time high for net single quarter since Q4 2012 posted 857,000 sq. ft. absorption for a year. The market posted 649,339 • The year-to-date net absorption surpassed 1.5 sq. ft. of positive net absorption, the highest level million sq. ft. and is less than 300,000 sq. ft. from since Q4 2012. With another strong quarter to close setting a new all-time high for annual net absorption. out 2015, not only would the fifth consecutive year • Delivered construction broke two million sq. ft. with of every quarter experiencing positive net the delivery of two more buildings to the market totaling 339,890 sq. ft. This is the first time this level absorption, but would also set a new record for of new product was delivered to the market since year-to-date net absorption for a year previously set 2008, when over 2.8 million sq. ft. was added. in 2011 when the year saw 1.9 million sq. ft. of positive net absorption.

After back-to-back quarters that saw vacancy rise, Negative net absorption was very modest, as only the strong quarter posted by Q3 2015 brought one submarket returned space to the quarter. The vacancy down 100 basis points (bps). The quarter East posted 5,828 sq. ft. of negative net absorption closed at 10.9%, which drops the vacancy rate for the quarter. The year-to-date net absorption for below 11% for just the second time ever, the other the submarket still remained positive, which time being Q4 2014. Direct vacancy ended up currently stands at 49,687 sq. ft. By the end of Q3 falling 60 bps to 10.2%, down from 10.6%. 2015, every submarket has positive net absorption year-to-date. The vast majority of positive net absorption was experienced by Class A product, which saw 695,078 After a Q2 2015 that saw rates decline, citywide sq. ft. of positive net absorption for the quarter. average asking rates got back nearly 66% of what This brought the year-to-date net absorption for was lost quarter-over-quarter. Rents bumped up Class A up to nearly 1.5 million sq. ft. After two $0.20 per sq. ft. on a Full Service Gross (FSG) basis, quarters of modest absorption, Class B space saw after declining $0.33 per sq. ft. the previous returned 104,669 sq. ft. to the market. Class C quarter. This caused rates to finish Q3 2015 at product finished the quarter with 58,930 sq. ft. of $31.53 per sq. ft., which is $2.30 per sq. ft. greater positive net absorption. than where rental rates were just a year ago.

Three submarkets had a quarter of positive net Two more buildings had development completed absorption over 100,000 sq. ft., led by the and were delivered to the market, adding another Southwest submarket with 200,870 sq. ft. This was 339,890 sq. ft. to the market. The buildings followed by the Far Northwest with 154,290 sq. ft., include Parmer 3.2 (191,990 sq. ft.) in the East and the CBD posting 135,085 sq. ft. Major move-ins submarket and Rollingwood Center I (147,900 sq. including a confidential tenant and Oracle taking a ft.) in the Southwest. The total space delivered was combined 128,000 sq. ft. at 7700 Parmer – Bldg B, 28% preleased by the time of completion, and Fresenius occupying 63,000 sq. ft. at the Park on while no tenants moved into their space by quarter Barton Creek 2, and Drop Box moving into 34,151 close, Naterra is expected to occupy 94,000 sq. ft. in sq. ft. at the Old Bank of America Building. Parmer 3.2 by the end of the year.

Figure 2: Market Statistics

Avg. Direct Asking 2015 Lease Rates Rentable Vacancy Net 2015 Net Delivered Under ($/SF/YR) Area Vacant Rate Absorption Absorption Construction Construction Market (SF) (SF) (%) (SF) (SF) (SF) (SF) Class A Class B CBD 9,809,755 767,892 7.8 135,085 565,959 557,470 669,842 44.17 33.55 Northwest 13,158,731 1,282,164 9.7 83,407 395,494 451,973 803,658 33.26 28.71 Far Northwest 4,110,579 437,731 10.6 154,290 161,284 - 128,700 33.81 27.52 North Central 3,036,685 440,232 14.5 55,902 68,233 50,000 164,962 34.28 22.27 Round Rock 620,894 50,905 8.2 2,070 10,194 - - - 24.71 East 2,133,756 390,560 18.3 (5,828) 49,687 191,990 96,510 - 22.13 South 1,746,355 242,510 13.9 23,543 41,685 - - 29.00 14.41 Southwest 10,257,625 1.260,690 12.3 200,870 288,668 838,832 317,293 35.03 29.12 Totals 44,874,380 4,872,684 10.9 649,339 1,581,204 2,090,265 2,180,965 36.36 25.61

Source: CBRE Research, Q3 2015.

Figure 3: Net Absorption Net Absorption (MSF) 1.0 0.8 0.6 0.4 0.2 0.0 (0.2) (0.4) (0.6) (0.8) (1.0) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Class A Class B Overall Total Net Absorption Source: CBRE Research, Q3 2015.

The vacancy of the CBD continues to tighten, as Four market requirements of over 100,000 sq. ft. the quarter closed with vacancy at 7.8%. Class B led a quarter that saw over 1.5 million sq. ft. of new product currently has the lowest vacancy demand in the market. Major tenants include downtown at 5.3%, followed by the 6.7% in Class C Netspend seeking up to 175,000 sq. ft. in the space and 8.8% in Class A. As tenants continue to market and CAPCOG nearly 50,000 sq. ft. South of move into new product that has been recently downtown. The largest requirement in the market delivered, it can be expected that this trend will belong to Texas Mutual, who is seeking over continue. The suburban vacancy also saw a 200,000 sq. ft. Current demand levels now stand at decrease this quarter, falling 70 bps quarter-over- over 4.35 million sq. ft., a 700,000 sq. ft. increase quarter to 11.7%. Class B space holds the highest year-over-year. vacancy rate in the suburban market closing at 12.2%, a 20 bps increase quarter-over-quarter, For tenants looking into a specific market for their followed by Class A and C product which finished requirements, the Northwest submarket holds the the quarter at 11.9% and 4.1% respectively. highest level of demand, with 333,000 sq. ft. This was then followed by the CBD, which posted Availability across the market returned to Q1 2015 230,500 sq. ft. of users in the market requirements, levels, falling the same amount that it increased in and the Southwest submarket with 153,000 sq. ft. It the previous quarter. With just over 6.7 million sq. is no coincidence that the top three submarkets ft. available throughout the market, the quarter also lead in the market in key market indicators, as closed with 15.0% availability. The East holds the all three have been a hot spot for new tenants highest availability among submarkets at 18.3%, coming into the market. while the CBD and Round Rock hold the lowest at 7.8% and 8.2% respectively. Class A availability throughout the market saw increases in both Class A and B product, which finished the quarter at 19.3% and 14.8%. Class C saw the lone decrease in availability, falling to 4.8%.

Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) 2.0 26

1.5 24 22 1.0 20 0.5 18 0.0 16 (0.5) 14

(1.0) 12

(1.5) 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q3 2015.

OFFICE ASKING RATES

Rates fell in for the first time since Q4 2013 in the previous quarter, but the decline was short lived as Figure 5: Asking Rates, Gross Avg. Annual the growth in rental rates that the market has been experiencing since the end of 2011 continued. $/SF Since Q3 2011, citywide average rates have grown 38 21%, or $6.60 per sq. ft. as rents finished the 36 quarter at $31.53 per sq. ft. As with the overall 34 market, Class A rates bounced back from a decline 32 in Q2 2015 and rose $0.76 up to $36.36 per sq. ft. 30 Class B and C product also saw increases, closing 28 the quarter at $25.61 and$21.50 per sq. ft. respectively. 26 24

The highest rates remain in the CBD, which rose 22 another $0.24 quarter-over-quarter, and finished at 20 $40.53 per sq. ft. The CBD is followed by the 18 Southwest, which closed the quarter at 33.77 per 2007 2008 2009 2010 2011 2012 2013 2014 2015 sq. ft., and the Northwest which rose another $0.84 Class A Class B Market Average Asking up to $31.43 per sq. ft. Average suburban rates also saw a quarter-over-quarter increase, as well as Source: CBRE Research, Q3 2015. across all product types, mirroring the what the overall market experienced for the quarter. Suburban rates closed the quarter at $29.61 per sq. ft., and increase of $0.91 per sq. ft. Average Class A rental rates finished the quarter at 34.12 per sq. ft., while class B and C rates posted$24.74 and $18.00 per sq. ft. respectively.

OFFICE PRODUCT Figure 6: Construction

(MSF) After a quarter that saw over 869,000 sq. ft. 3.5 delivered from seven projects, Q3 2015 saw only two more buildings deliver for a total of 339,890 sq. 3.0 ft. The completions of Rollingwood Center I (147,900 sq. ft.) in the Southwest and Parmer 3.2 2.5 (191,990 sq. ft.) in the East, brought the year-to- date total of delivered construction past 2 million 2.0 sq. ft. This is the third time since 2002, when over 2 1.5 million sq. ft. was added for a year, the other two coming in 2002 (2,321,519 sq. ft.) and 2008 1.0 (2,889,406 sq. ft.) 0.5 Construction began on another building in the 0.0 market, as Domain 8 broke ground in the 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Northwest. While there is currently no preleased Under Construction Delivered Construction space, the building will eventually add 291,000 sq. ft. to the market. By the close of the quarter, nearly Source: CBRE Research, Q3 2015. 2.2 million sq. ft. of office product was under construction, which marks the sixth straight Figure 7: Unemployment quarter where construction levels were above 2 million sq. ft. % 10

UNEMPLOYMENT 9

8 Local unemployment saw a slight rise in the month of August, creeping up with a 10 bps 7 increase to close the quarter at 3.2% - a tight figure 6 by an measure nonetheless. State and national 5 unemployment saw yet another decrease, falling 20 and 40 bps respectively and closing the at 4.1% and 4

5.1%. Since closing 2014 at 4.1%, local 3 unemployment has fallen a total of 90 bps, 2 remaining ahead of the national level with 80 bps, 2007 2008 2009 2010 2011 2012 2013 2014 2015 but behind the state level by 100 bps. - still U.S. Texas Austin - Round Rock - San Marcos MSA outpacing national and state levels. Source: CBRE Research, Q3 2015. Austin, and Texas for that matter, has garnered major attention from local and national media based on low unemployment numbers in the midst of a surging population boom. When comparing the socioeconomic strengths of over 500 communities, WalletHub listed Austin as the fastest-growing economy among large U.S. cities. In-state competitors Fort Worth and Houston landed in the third and tenth landed in the third spot, while Houston capped off the Top 10.

CONTACTS

E. Michelle Miller Research Operations Manager [email protected]

Nicholas Ianetta Research Coordinator +1 210 253 6019 [email protected]

CBRE OFFICES

Austin Office 100 Congress Ave., Suite 500 Austin, TX 75701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q2 2015 Tightest Vacancy in Texas; YTD Demand Nears 1.0 Million SF

Vacancy Rate Avg. Asking Rate Net Absorption Completions 11.9 % 31.33 $/SF 489,183 SF 869,280 SF

*Arrows indicate change from previous quarter.

Figure 1: Asking Rates, Gross Avg. Annual and Vacancy Rates

$/SF Vacancy Rate (%) 34 26

24 32

30 20

28 18

16 26

24 12

Asking Rates Total Vacancy Rate Source:Source: CBRE Research, CBRE Research, Q4 2014. Q2 2015.

Even with the recent uptick to 11.9%, Austin’s • Austin’s office market delivered 869,280 sq. ft. of new product this quarter, representing nearly a 2% office vacancy is the tightest amongst state major increase in net rentable area and brought the year- metros. This explains why CBRE Research is to-date total of completions to 1,750,375 sq. ft. And closely tracking the seven office buildings delivered the market is not yet done: even with all the in Q2 2015 for a total of 869,280 sq. ft. Only one of completions so far this year, there is another 2.2 the buildings was in the CBD, an office portion of million underway. the mostly residential building at 311 Bowie; • Still, the Capital City posted a robust quarter for net absorption with nearly 300,000 sq. ft. absorbed in in 40,985 sq. ft. had been pre-leased by Whole Foods. the past 90 days in the CBD and nearly another Meanwhile, the Southwest submarket delivered the 200,000 sq. ft. in the suburbs. most product; four buildings totaling of 663,295 sq. ft. - the largest 3700 San Clemente.

Also delivering along with 3700 San Clemente on Three of these are in the CBD for a total of 669,842 Capital of Texas Hwy and just behind in size was sq. ft. The Southwest tied for the most with four the Capital Ridge building. This 217,490 sq. ft. projects for a total of 465,193 sq. ft. The Northwest Class A building was developed by Riverside also had four projects underway for 512,658 sq. Resources and had been rented in entirety to a ft. The East submarket had two projects under global technology company. Following those two construction for 288,500 sq. ft. And lastly the was the delivery of Encino Trace 1. This Class A North Central had one project underway for building had a rentable area of 160,935 sq. ft. and 164,962 sq. ft. In total there was 2,229,855 sq. ft. of was built at 5707 Southwest Parkway. Bringing up product under construction at the end of the the rear in the Southwest, Rialto A delivered 35,000 quarter. sq. ft. of Class B office space. The Austin office market witnessed its 18th In the Northwest submarket, Champion 2 consecutive quarter of positive net absorption and delivered. The 115,000 class B building is located finished at 489,183 sq. ft. That was a 46,501 sq. ft. at 6500 Capital of Texas Hwy. Like Champion 1, it increase over Q1 2015, and a year-over-year gain of was preleased in entirety to the job search website 336,122 sq. ft. 291,638 sq. ft. of that net absorption Indeed.com. Finally, to round out the list of was in the CBD, while the other 197,545 sq. ft. was completions, a 50,000 sq. ft. office building in suburban submarkets. delivered at 1705 Guadalupe. This Class A building is located in the North Central submarket just The 291,638 sq. ft. of absorption in the CBD was northwest of the State Capitol. 152,402 sq. ft. more than Q1 2015. Class A CBD office space saw a net absorption of 294,955 sq. ft. As of the end of Q2 2015, there were 15 other Much of that absorption was attributable to projects under construction in the Austin market. tenants turning the lights on in the Colorado Tower that delivered last quarter. Class B & C space in the CBD had mixed results. Class B space witnessed a decrease of 13,011 sq. ft. of net absorption while Class C saw a gain of 9,646 sq. ft. of net absorption.

Figure 2: Market Statistics

Avg. Direct Asking 2015 Lease Rates Rentable Vacancy Net 2015 Net Delivered Under ($/SF/YR) Area Vacant Rate Absorption Absorption Construction Construction Market (SF) (SF) (%) (SF) (SF) (SF) (SF) Class A Class B CBD 9,809,755 1,000,267 10.2 291,638 430,874 557,470 669,842 41.90 36.43 Northwest 13,158,731 1,356,169 10.3 200,957 312,087 451,973 512,658 32.74 27.45 Far Northwest 4,110,579 640,027 15.6 (20,021) 6,994 - 128,700 31.50 27.33 North Central 3,036,685 496,134 16.3 (22,263) 12,331 50,000 164,962 33.38 22.19 Round Rock 620,894 52,975 8.5 17,024 8,124 - - - 24.43 East 1,941,766 253,314 13.1 6,113 55,515 - 288,500 - 22.39 South 1,746,355 266,053 15.2 (5,891) 18,142 - - 28.00 14.94 Southwest 10,109,725 1,234,463 12.2 21,626 87,798 690,932 465,193 33.76 27.71 Totals 44,534,490 5,299,396 11.9 489,183 931,865 1,750,375 2,229,855 35.60 25.33

Source: CBRE Research, Q2 2015.

Class A Class B Overall Total Net Absorption

Source:Source: CBRECBRE Research,Research, Q2Q4 2015.2014.

Total vacancy decreased this quarter to 10.2% addressed. So much inventory delivering so downtown. This was a 260 basis points (bps) quickly has been warping the vacancy numbers in decrease quarter-over-quarter. these submarkets. When product has been delivered, it was delivered vacant, despite the fact The Northwest submarket followed the CBD with that it was often preleased. It is not considered second most net absorption for the quarter. It occupied until the build-outs are done and tenants finished with a gain of 200,957 sq. ft. of move in. So, when products delivered, there would absorption, 89, 827 sq. ft. more than Q1 2015. Of have been a spike up in vacancy rate until the the absorption this quarter in the Northwest build-out is complete. This trend is expected to submarket, 174,243 sq. ft. of that was in Class A continue in Austin throughout this construction product. Much of this was tenants moving into cycle. Domain 7 which delivered last quarter. Class B space in the Northwest registered a 25,690 gain of Austin’s office availability increased 50 basis points net absorption for the quarter, and class C space (bps) and ended the quarter at 15.5%. The Far posted a modest 1,024 sq. ft. gain. Northwest submarket had the highest availability at 18.4%. It was followed by the North Central The Southwest submarket posted a gain of 21,626 submarket with an availability of 18.2%. The East sq. ft. of net absorption in Q2 2015. This was a and CBD submarkets tied for the lowest availability quarter-over-quarter decrease of 44,546 sq. ft. at 14.0%. Class A space saw a decrease of net absorption of 30,207 sq. ft. Class B space on the other hand saw in increase of 49,411 sq. ft. of net absorption.

The CBD, Northwest, and Southwest submarkets have experienced unusual fluctuations in vacancy rates recently. This phenomenon needed to be

Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) 2.0 26

1.5 24 22 1.0 20 0.5 18 0.0 16 (0.5) 14

(1.0) 12

(1.5) 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q2 2015.

OFFICE ASKING RATES

After robust gains in Q1 2015, asking rates retreated a bit during the past 90 days. The Figure 5: Asking Rates, Gross Avg. Annual citywide average asking rate posted a quarter-over- quarter decline of $0.33 and ended up at $31.33. $/SF The citywide Class A rate dropped $0.67 this 38 quarter and finished at $35.60. Class B rates on the 36 other hand rose citywide. They came in with a 34 quarter-over-quarter increase of $0.85 to $25.33. 32

30 The trend for rates was similar in the CBD. Class A 28 rates declined (they went from $43.83 in Q1 to $41.90 in Q2) and class B rates increased ($35.85 in 26 Q1 to $36.43 in Q2). The average rate among all 24 classes in the CBD was $40.29 for Q2 2015. 22

20 Suburban rates went a different direction. Class A 18 average asking rates increased $0.47 this quarter 2007 2008 2009 2010 2011 2012 2013 2014 2015 and landed at $32.86 per sq. ft. The Class B sector Class A Class B Market Average Asking rose $0.57 and finished the quarter at $24.10 per sq. ft. Class C rates went the other way. They Source: CBRE Research, Q2 2015. experienced a quarter-over-quarter $0.79 decline and finished at $17.72. The average asking rate for all classes in Q2 2015 was $28.70 which was a $0.48 quarter-over-quarter increase.

OFFICE PRODUCT Figure 6: Construction

(MiSF) Seven office buildings delivered this quarter. One 3.5 of these buildings was in the CBD, and added

40,985 of Class A space to the market. Four 3.0 buildings delivered in the Southwest submarket for 663,295 sq. ft. Three of the buildings were class A, 2.5 one was class B. There was delivery in the North Central submarket, a Class A 50,000 sq. ft. 2.0 property. And, lastly, the Northwest delivered a 1.5 115,000 Class B building. 1.0 At the end of Q2 2015, the Austin market had over 2.2 million sq. ft. of office space under 0.5 construction. Of that, over one-third had been 0.0 preleased. As of quarter close, there were 15 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 buildings under construction in the Austin market. Under Construction Delivered Construction The CBD had the most rentable area under construction at 669,842 sq. ft. of product spread Source: CBRE Research, Q2 2015. across 3 projects. There was 1,560,013 sq. ft. of product under construction in suburban Figure 7: Unemployment submarkets. It was comprised of 12 projects in five submarkets. % 10 UNEMPLOYMENT 9

8 Seasonally adjusted unemployment improved at the national and state level and remained constant 7 at the local level. As of Q2 2015, national 6 unemployment saw a drop of 10 bps to settle in at 5 5.5%. Texas unemployment saw a decrease and came in at 4.3%. The Austin-Round Rock- San 4

Marcos MSA did not change as of the end of the 3 quarter. Austin still comparatively leads national 2 and state levels and registered in at 3.1%. Job 2007 2008 2009 2010 2011 2012 2013 2014 2015 growth remains strong in the area. US Texas Austin - Round Rock - San Marcos MSA

Austin, and most of Texas, has garnered major Source: CBRE Research, Q2 2015. attention from local and national media outlets for their ability to maintain low unemployment numbers in the midst of a surging population boom. Austin has been ranked as the second best city for future job growth by Forbes, and Dice reports that Texas is leading the nation in tech job creation, and second for the largest workforce of tech professionals.

CONTACTS

E. Michelle Miller Research Operations Manager [email protected]

Patrick Loewe Research Coordinator +1 512 499 4939 [email protected]

CBRE OFFICES

Austin Office 100 Congress Ave., Suite 500 Austin, TX 75701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q1 2015 Citywide average asking rates breach $30 mark

Vacancy Rate Avg. Asking Rate Net Absorption Completions 11.5 % 31.66 $/SF 442,682 SF 881,095 SF

*Arrows indicate change from previous quarter.

Figure 1: Asking Rates, Gross Avg. Annual and Vacancy Rates

$/SF Vacancy Rate (%) 34 26

24 32

30 20

28 18

16 26

24 12

Asking Rates Total Vacancy Rate Source:Source: CBRE Research, CBRE Research, Q4 2014. Q1 2015.

The Austin office market delivered five buildings of • The Austin market delivered 881,095 sq. ft. of new product to the market, representing over a 2% office product in Q1 2015 for a total of 881,095 sq. increase in net rentable area. f. Two of the buildings were in the CBD, the • Average asking rates experienced a steep increase. Colorado Tower and the Seaholm redevelopment Average Class A CBD rates rose to $43.83. Average with 373,334 sq. f. and 143,151 sq. f. respectively. suburban Class A rates finished the quarter at Both of these projects were mostly preleased. $32.39. • Austin posted a robust quarter for net absorption. Seaholm had AthenaHealth and Under Armour 139,236 sq. ft. were absorbed in the CBD and constituting most of the space, while at the 303,446 sq. ft. were absorbed in suburban Colorado Tower the two biggest tenants were submarkets for a combined market total of 442,682 Atlassian and Parsley Energy. This was 516,485 sq. ft. sq. f. added to the

inventory of the CBD and brought the net rentable Q1 2015 at $31.66. This represents a dramatic area of the submarket to 9,768,770 sq. f. $3.07 rise year-over-year, or a 10.7% increase.

Similarly, the Northwest delivered two buildings as In the CBD, Class A rates experienced a $2.38 year – well. The first of which was Champion I. The over-year per sq. f. increase this quarter. Class B 115,000 sq. f. building had largely been preleased rates saw an even more drastic increase, going by Indeed.com. Domain 7 also delivered in the from $30.13 in Q1 2014 to $35.85 this quarter. The Northwest submarket in Q1 2015. The six story average asking rate across all classes ended the 221,973 sq. f. building leased two floors to quarter at $41.64 in the CBD, a year-over-year gain Amazon and one to Ottobock prior to delivery. In of $3.61 per sq. f. the Southwest, Rialto B delivered 27,637 sq. f. of office space. It has no known tenants. Big asking rate increases were not limited to the CBD. Average suburban asking rates increased As of the end of Q1 2015, there were 20 other $3.00 to finish Q1 2015 at $28.22. Suburban Class projects under construction in the Austin market. A rates had a healthy jump from this time last year, Four of these were in the CBD for a total of 733,389 finishing the quarter up $2.33 at $32.39. Similarly, sq. f. The Southwest had the most with 8 projects average Class B suburban rates saw a $2.38 for a total of 1,123,663 sq. f. The Northwest increase from Q1 2014 and finished this quarter at rounded out the top 3 submarkets with 3 projects $23.53. underway for 424,115 sq. f. In total there was 2,883,552 sq. f. of product under construction at Asking rates in the Northwest averaged at $30.46, a the end of the quarter. $2.68 increase from Q1 2015. Class A rates in the Northwest jumped $2.86 in this timeframe and Asking rates were another major talking point this Class B rates followed suit at a $2.08 increase. quarter. The citywide average full service gross Results in the Southwest were similar. At the end (FSG) asking rate for office product finished of Q1 2015, the southwest average rate was $31.63, a $2.61 per sq. f. increase year-over-year .

Figure 2: Market Statistics

Avg. Direct Asking 2015 Lease Rates Rentable Vacancy Net 2015 Net Delivered Under ($/SF/YR) Area Vacant Rate Absorption Absorption Construction Construction Market (SF) (SF) (%) (SF) (SF) (SF) (SF) Class A Class B CBD 9,768,770 1,250,920 12.8 139,236 139,236 516,485 733,389 43.83 35.82 Northwest 13,043,731 1,425,647 10.9 111,130 111,130 336,973 424,115 32.06 26.71 Far Northwest 4,110,579 572,000 13.9 27,015 27,015 - 128,700 31.13 27.21 North Central 2,986,685 423,871 14.2 34,594 34,594 - 165,682 32.53 21.92 Round Rock 620,894 69,999 11.3 (8,900) (8,900) - - - 24.74 East 1,941,766 259,427 13.4 49,402 49,402 - 308,000 - 22.33 South 1,746,355 260,162 14.9 24,033 24,033 - - 27.50 14.56 Southwest 9,446,430 753,729 8.0 29,201 29,201 27,637 1,123,663 34.35 27.37 Totals 43,665,210 5,015,755 11.5 442,682 442,682 881,095 2,888,552 36.27 24.48

Source: CBRE Research, Q1 2015.

Class A Class B Overall Total Net Absorption

Source:Source: CBRECBRE Research,Research, Q1Q4 2015.2014.

The Austin office market witnessed it’s 17th completion and delivery of two office projects in consecutive quarter of positive net absorption and the submarket. finished at 442,682 sq. f. That was a 124,047 sq. f. increase over Q4 2014, and a year-over-year gain of The Southwest submarket posted a gain of 66,172 198,054 sq. f. 139,236 sq. f. of that net absorption sq. f. of net absorption in Q1 2015. This was a was in the CBD, while the other 303,446 sq. f. was quarter-over-quarter increase of 36, 971 sq. f. in suburban submarkets. However, the Southwest did see a 45,623 sq. f. decrease in net absorption for Class B space, but The 139,236 sq. f. of absorption in the CBD was that was offset by a 108,078 sq. f. gain in Class A 37,374 sq. f. less than Q4 2014. Class A CBD office space. space saw a net absorption of 159,817 sq. f. Class B & C, however, had a combined drop of 20,581 sq. The only submarket to show any negative net f. Total vacancy increased this quarter to 12.8% absorption in Q1 2015 was Round Rock with downtown. Positive net absorption and increase (8,900) sq. f. The South submarket had the in vacancy was due to the completion of highest total vacancy for the quarter finishing at construction and delivery of two new office 14.9%. This was followed by the North Central projects. Most of this space had been leased with a total vacancy of 14.2%. Rounding out the already and was waiting for tenants to move-in. top three for highest total vacancy was the far Northwest finishing the quarter at 13.9%. The Northwest submarket followed the CBD with second most net absorption for the quarter. It The citywide Austin office availability rate finished with a gain of 111,130 sq. f. of absorption, increased 90 basis points (bps) and ended the 25, 755 sq. f. more than Q4 2014. Of the quarter at 15.0%. The far Northwest submarket absorption this quarter in the Northwest had the highest availability at 17.6%. It was submarket, 68,842 sq. f. of that was in Class A followed by the CBD with an availability of 17.3%. product and 43,312 sq. f. In Class B space. Like The East submarket had the lowest availability at the CBD, the total vacancy rate increase coincided 11.6% followed by the Southwest at 11.8%. along with positive net absorption due to the

MARKETVIEW AUSTIN OFFICE

Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) 2.0 26

1.5 24 22 1.0 20 0.5 18 0.0 16 (0.5) 14

(1.0) 12

(1.5) 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q1 2015.

OFFICE ASKING RATES

Citywide office average asking rates once again reached a new high in Q1 2015, coming in at Figure 5: Asking Rates, Gross Avg. Annual $31.66 per sq. f. This robust jump was largely explained by three factors. First, the quoted Austin $/SF rental rate was a full service gross value. That 38 means that taxes and operating expenses were 36 included in it. Taxes increased at the beginning of 34 the year so added increases in Q1 2015 rates were 32 factored in. On top of that, with the success of the 30 Austin market, property values on office product are outpacing broader averages, and thus so are 28 property taxes. Secondly, the delivery of over 26 880,000 sq. f. of new product influenced rates. 24

This was a large addition of space with all of it 22 being higher in quality than the market average, 20 thus they were also drawing higher asking rates, 18 pushing the citywide average up. And lastly, Austin 2007 2008 2009 2010 2011 2012 2013 2014 2015 has been a competitive market with vacancy low Class A Class B Market Average Asking and demand high resulting in upward pressure on asking rates. Source: CBRE Research, Q1 2015.

Rate increases were felt across all class types for the quarter. Class A citywide average asking rates climbed to $36.27. Class B rates came in at $24.48, a $1.59 quarter-over-quarter increase. Class C rates ﬁnished the quarter at $23.05, a $0.99 per sq. f. increase this quarter.

OFFICE PRODUCT Figure 6: Construction

(MiSF) Five oﬃce buildings delivered this quarter. Two 3.5 buildings in the CBD, Colorado Tower and the Seaholm redevelopment, delivered 373,334 sq. f. 3.0 and 143,151 sq. f. respectively. The Northwest submarket delivered the 115,000 sq. f. Champion 2.5 1 and the 221,973 sq. f. Domain 7. The Southwest rounded out the deliveries with the 27,637 sq. f. 2.0 Rialto B. 1.5

At the end of Q1 2015, the Austin market had over 1.0 2.8 million sq. f. of oﬃce space under construction. Of that, over one-third had been 0.5 preleased. As of quarter close, there were 20 0.0 buildings under construction in the Austin market. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The Southwest submarket currently has the most Under Construction Delivered Construction buildings currently under construction with 8 being built for 1,123,663 sq. f. of product. The Source: CBRE Research, Q1 2015. southwest was trailed by the CBD with 733,389 sq. f., and the Northwest at 424,115 sq. f. Figure 7: Unemployment

UNEMPLOYMENT % 10

Seasonally adjusted unemployment improved at 9 national, state, and local levels. As of Q1 2015, 8 national unemployment saw a drop of 30 bps to settle in at 5.6%. Texas unemployment saw a 7 decrease and came in at 4.6%. Likewise, the 6 Austin-Round Rock- San Marcos MSA experienced 5 a decrease. Austin still comparatively leads national and state levels and registered in at 3.9%. 4

Job growth remains strong in the area. According 3 to Moody's Analytics, Austin registered seasonally 2 adjusted year-over-year oﬃce job growth of 4.0%. 2007 2008 2009 2010 2011 2012 2013 2014 2015

US Texas Austin - Round Rock - San Marcos MSA Austin, and most of Texas, has garnered major attention from local and national media outlets for Source: CBRE Research, Q1 2015. their ability to maintain low unemployment numbers in the midst of a surging population boom. Austin has been ranked as the second best city for future job growth by Forbes, and Dice reports that Texas is leading the nation in tech job creation, and second for the largest workforce of tech professionals.

CONTACTS

Lynn Cirillo Research Operations Manager [email protected]

Patrick Loewe Research Coordinator +1 512 4994939 [email protected]

CBRE OFFICES

Austin Oﬃce 100 Congress Ave., Suite 500 Austin, TX 75701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Austin Office, Q4 2014 Citywide average asking rates reach new heights again

Vacancy Rate Avg. Asking Rate Net Absorption Completions 10.6% 29.56 $/SF 318,635 SF 143,331 SF

*Arrows indicate change from previous quarter.

Figure 1: Asking Rates, Gross Avg. Annual and Vacancy Rates

$/SF Vacancy Rate (%) 30 26

29 24

28 22

27 20

26 18

25 16

24 14

23 12

Asking Rates Total Vacancy Rate Source: CBRE Research, Q4 2014.

The Austin office Market delivered its 16 th • Citywide Average asking rates reached new all time consecutive quarter of positive net highs again at $29.56 per sq. ft. per year on a full service gross basis. Class A CBD rates climbed to absorption to finish the year. Austin posted $43.13 per sq. ft. per year. a positive net gain of 318,635 sq. ft. for Q4 • Citywide direct vacancy dropped to 9.5%. The 2014 and finished the year up 1,158,340 sq. Southwest lead all submarkets with a direct vacancy ft. The CBD posted a strong quarter of rate of 6.8%, followed by the Northwest and CBD at positive net absorption with 176,610 sq. ft. 8.1% and 8.7% respectively A large portion of this was explained by • Domain 2 delivers 143,331 sq. ft. in Northwest submarket, over 600,000 sq. ft. of new office product tenants moving into the new IBC Bank Plaza broke ground in the Central Business District building that delivered last quarter.

Likewise, suburban submarkets experienced This was a $0.84 increase over Q3 2014. Class B healthy positive net absorption. The Northwest and C, however, witnessed decreased rates in both submarket lead the pack finishing Q4 2014 with the CBD and suburban submarkets. Class B 85,375 sq. ft. of positive net absorption. This was citywide rates finished at an average of $22.85, a after it had lost 71,160 sq. ft. in Q3 2014. The $0.47 decrease quarter-over quarter. Southwest submarket followed the Northwest with 29,201 sq. ft. of absorption. Only the East Construction remained a noteworthy topic this submarket showed negative net absorption in Q4 quarter. Construction began on a new 179,00 sq. ft. 2014, and that was only 5,576 sq. ft. CBD office tower at 5th & Colorado being developed by Lincoln properties. The 371,348 sq. Total vacancy continued its recent downward ft. Colorado Tower two blocks south has been trajectory, finishing the quarter at 10.6%. This was scheduled to deliver in December, but has yet to do a quarter-over-quarter decline of 80 basis points so. Construction on the 456,459 sq. ft. Greenwater (bps). Citywide direct vacancy fell to 9.5%. This building being developed by Trammel Crow has was the first time since Q2 2001 that citywide just broke ground. Most of this new CBD direct vacancy has been below 10%. CBD direct development was going into the Southwest region vacancy finished Q4 2014 at 8.7%, and suburban of the submarket, potentially drawing attention submarkets finished at 9.7%. away from the trophy buildings lining north Congress Avenue towards the state capital. Ground Citywide average asking rates reached new heights broke on the new 137,615 sq. ft. Bazaarvoice in Q4 2014 finishing at $29.56 per sq. ft. This was a headquarters at 10901 Stonelake Blvd. Endeavor's $0.33 increase over the previous quarter's $29.23 Domain 2 delivered its 5 story 143,331 sq. ft. per sq. ft. on a full service gross (FSG) basis. Class building in the Northwest submarket. Homeaway A asking rates saw an increase across all Austin housed one of its five area locations in the area submarkets, with the citywide Class A rate building, leasing 114,665 sq. ft. of the available finishing Q4 2014 at an average of $34.51 per sq. ft. space.

Figure 2: Market Statistics

Avg. Direct Asking 2014 Lease Rates Net 2014 Net Delivered Under ($/SF/YR) Rentable Vacant Vacancy Absorption Absorption Construction Construction Market Area (SF) (SF) Rate (%) (SF) (SF) (SF) (SF) Class A Class B CBD 9,252,285 873,671 9.4 176,610 369,822 167,871 1,131,227 43.13 34.12 Northwest 12,706,758 1,190,580 9.4 85,375 224,246 143,331 870,615 30.83 25.96 Far Northwest 4,110,579 568,981 13.8 7,937 79,360 - 212,400 29.88 27.02 North Central 2,986,685 458,465 15.4 6,103 222,683 - 128,360 31.40 21.75 Round Rock 620,894 61,099 9.8 10,168 41,367 - - - 24.34 East 1,941,766 288,940 14.9 (5,576) 49,392 - 192,000 - 12.00 South 1,746,355 284,195 16.3 8,817 70,143 - - 27.00 14.06 Southwest 9,458,793 792,264 8.4 29,201 101,327 76,500 1,034,614 34.87 27.41 Totals 42,824,115 4,518,195 10.6 318,635 1,158,340 387,702 3,569,216 34.78 22.89

Source: CBRE Research, Q4 2014.

Figure 3: Net Absorption Net Absorption (000’s SF) 1,000 800 600 400 200 0 (200) (400) (600) (800) (1,000) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

Class A Class B Overall Total Net Absorption Source: CBRE Research, Q4 2014. The Austin Office market posted a net absorption Citywide office vacancy finished Q4 2014 at 10.6% . gain of 318,635 sq. ft. for Q4 2014, and a 1,158,340 The Southwest submarket had the lowest vacancy sq. ft. gain for the year. This represented a 254,034 of the quarter at 8.4%. The CBD, Round Rock, and sq. ft. year-over- year gain for the Austin market as Northwest all finished 2014 with vacancies under a whole. The CBD submarket led Austin with a 10%. The South and North Central submarkets yearly net absorption gain of 368,822 sq. ft. The had the highest vacancies at 16.3% and 15.4%, CBD was followed by the Northwest submarket respectively. Class B office product had the lowest with a 284,246 sq. ft. gain in net absorption to vacancy at 9.5%, perhaps attributable to the finish 2014, a 104,632 sq. ft. increase from Q4 inflating price of Class A space. 2013. Surprisingly, the North Central rounded out the top three and absorbed 222,683 sq. ft. Direct vacancy painted a similar picture with the citywide rate finishing the year at 9.5% The The only submarket to show any negative Southwest led all submarkets with the lowest absorption in Q4 2014 was the East with a total of direct vacancy rate of 6.8%. It was followed by the negative 5,576 sq. ft., and no submarkets showed Northwest and the CBD with Q4 2014 rates of 8.1% any negative net absorption for the year. The and 8. 7% respectively. These three submarkets Southwest only showed 101,327 sq. ft. of positive make up over 70% of the net rentable area (NRA) in net absorption for the year, a 48,584 sq. ft. decrease the Austin market, and all have direct vacancies year-over-year. This was largely due to the lack of under 9%. available product in the submarket. Occupier demand in the market remained strong, Of the 318,635 sq. ft. of positive net absorption the though it dipped from last quarter. Fifty-one Austin market posted in Q4 2014, 280,096 sq. ft. entities were identified looking for over 3.1 million was Class A space. Large portions of this were sq. ft. of office space in the Austin market. That seen in the Northwest at Domain 2 with Homeaway constitutes over two-thirds of all vacant office occupying half their space, and tenants beginning space in Austin. to move into the IBC Bank building in the CBD. The North Central was the only submarket to show any negative net absorption in Class A space with a modest 3,350 sq. ft.

Figure 4: Net Absorption and Vacancy Rate Net Absorption (000’s SF) Vacancy Rate (%) 2,000 26

1,500 24

22 1,000 20 500 18 0 16 (500) 14

(1,000) 12

(1,500) 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q4 2014.

OFFICE ASKING RATES Figure 5: Asking Rates, Gross Avg. Annual

Citywide Average asking rates once again reached $/SF a new high in Q4 2014, beating the previous 36 quarter by $0.33 per sq. ft. and finished at $29.56. 34 Southwest average class A saw the largest increase 32 over the previous quarter going from $31.38 per sq. ft. to $33.91 per sq. ft., a $2.53 jump. Low 30 vacancies in this submarket are putting 28 significant pressure on asking rents. Not quite as 26 drastic, but also noteworthy, were the increase in rates in the CBD submarket. CBD Class A rates 24 ended the quarter at $42.24 per sq. ft., a quarter- 22 over-quarter increase of 2%. Class A Suburban 20 rates also saw an increase. They rose $0.49 per sq. 18 ft. to close the quarter at $31.16 per sq. ft. 2007 2008 2009 2010 2011 2012 2013 2014 Citywide Class A rates followed trend, and ended Class A Class B Market Average Asking the quarter up quarter-over-quarter and finished at $34.51 per sq. ft. However, the gains were not spread over all classes. Both Class B and C properties saw asking rent decreases in the CBD, suburban submarkets, and citywide.

OFFICE PRODUCT Figure 6: Construction

000’s (SF) Construction began in the CBD on the 18 story, 3,500 179,00 sq. ft. office tower at 5th & Colorado. Two blocks south, construction is nearly complete on 3,000 the 371,348 sq. ft. office tower at 303 Colorado, and delivery has been expected any day. Permits have 2,500 been issued and construction has begun on the Greenwater Tower. Located at 2nd and San Antonio, 2,000 it is planned to have over 450,000 sq. ft. of office 1,500 space. The Northwest submarket delivered Domain 2 at 11800 Domain Blvd. The five story, 143,331 sq. 1,000 ft. building was primarily occupied by Homeaway. 500 At the end of Q4 2014, the Austin market had 3.6 0 million sq. ft. of office space under construction. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Of that, over one quarter had been preleased. The Under Construction Delivered Construction CBD submarket currently has the most construction underway by sq. ft., but it will give back the lead to Source: CBRE Research, Q4 2014. the Southwest once the Colorado tower delivers.

Figure 7: Unemployment UNEMPLOYMENT % Unemployment changes were mixed across the 10 national, state, and local levels. As of Q4 2014, 9 national unemployment saw a drop of 30 bps to 8 settle in at 5.9%. Texas unemployment remained flat and once again came in at 5.1%. Likewise, the 7 Austin-Round Rock- San Marcos MSA 6 unemployment rate did not change. Yet, Austin still 5 comparatively leads national and state levels and registered in at 4.1% again. Job growth remains 4 strong in the area. According to Moody's Analytics, 3 Austin registered seasonally adjusted year-over-year 2 office job growth of 3.7% as of October. 2007 2008 2009 2010 2011 2012 2013 2014

US Texas Austin - Round Rock - San Marcos MSA Austin, and most of Texas, has garnered major attention from local and national media outlets for Source: CBRE Research, Q4 2014. their ability to maintain low unemployment numbers in the midst of a surging population boom. Austin has been ranked as the second best city for future job growth by Forbes, and Dice reports that Texas is leading the nation in tech job creation, and second for the largest workforce of tech professionals.

CONTACTS

Lynn Cirillo Research Operations Manager [email protected]

Patrick Loewe Research Coordinator +1 512 4994939 [email protected]

CBRE OFFICES

Austin Office 100 Congress Ave., Suite 500 Austin, TX 75701

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Q3 2014 CBRE Global Research and Consulting

VACANCY RATE ASKING RATE NET ABSORPTION UNEMPLOYMENT 11.4% $29.23 per Sq. Ft. 442,016 Sq. Ft. 4.1 % Y-o-Y

*Arrows indicate change from previous quarter. AVERAGE ASKING RATES CONTINUE RECORD CLIMB: SURPASS $29.00 PER SQ. FT. FOR FIRST TIME. The Austin office market saw its strongest For the first time since 2010, the Northwest Figure 1: Quick Stats quarter of 2014 with Q3 2014 posting 442,016 sq. submarket finished the quarter with negative ft. of positive absorption, the 15th straight quarter net absorption, snapping a streak of fourteen Q3 2014 Q-o-Q Y-o-Y of positive net absorption. After the previous quarter consecutive quarters of positive net absorption. The Vacancy 11.4% i i saw vacancy rise slightly, vacancy returned to a Northwest returned 71,160 sq. ft. to the market. downward trend as the vacancy rate fell 40 basis After surpassing the Southwest as the submarket Asking Rates $29.23 per SF h h points (bps) quarter-over-quarter, finishing at 11.4%. with the lowest vacancy, the Northwest relinquished Total space occupied in the market also saw a rise, its title back to the Southwest by rising 70 bps. The Net Absorption 442,016 SF h h up to almost 40 million sq. ft. Northwest and Southwest finished the quarter with vacancy rates of 9.4% and 9.2% respectively. Under Construction 2,867,457 SF h h In what has been a year of significant pre-leasing Delivered Construction 244,371 SF h h in product currently under construction, Q3 2014 Citywide average asking rates in the market rose continued the trend. This is highlighted by Colorado above $29.00 per sq. ft. for the first time ever Source: CBRE Research, Q3 2014. Tower, a 370,000 sq. ft. downtown office tower, recorded, rising $0.41 per sq. ft. quarter-over- becoming almost 95% preleased. Both Atlassian quarter, up to $29.23 per sq. ft. on a full-service Hot Topics and Parsley Energy, which both took 73,000 and gross (FSG) basis. The CBD also saw its second 24,000 sq. ft. respectively in Q1 2014, leased consecutive quarter of increased rates, finishing the Average asking rates construction levels two additional floors each. Pre-leased construction quarter at $38.69 per sq. ft. Increases in taxes and continue steady climbs. Market sees levels finished the quarter at 963,331 sq. ft., which operating expenses are the driving factors behind 15th consecutive quarter of positive accounts for almost 35% of product currently under the continued rise in average asking rates. construction. Demand in the market remains at a absorption. high level, with 3.65 million sq. ft. of active office The market saw its first buildings of the year requirements. delivered to the market, as construction was • Forbes ranked Austin as the second- completed on three projects. The CBD delivered The CBD, posting one of its strongest quarters its first building since 2009 with the completion of best city in the nation for future job ever, finished the quarter with 185,807 sq. ft. of the IBC Bank Plaza. The 195,000 sq. ft. building growth. positive net absorption. Significant move-ins that delivered over 167,000 sq. ft. of office product, attributed to this include Box and Tableau Software and was over 90% preleased with major tenants taking a combined 33,000 sq. ft. at One American including IBC Bank, H + K Strategies and First • The National Association of Realtors Center, and UT Systems occupying 29,000 sq. Trust Portfolio. Delivering in the Southwest were the lists Austin as a top buying market ft. at Lavaca Plaza. The CBD was topped by the Judges at Rob Roy, 40,000 sq. ft., and Hill Country for aspiring millennial homebuyers. Southwest submarket, which recovered from its over Galleria - Bldg W, 36,500 sq. ft. Even with the 100,000 sq. ft. of negative absorption experienced deliveries, Q3 2014 saw total construction levels in the previous quarter by posting 187,746 sq. ft. of rise with six projects breaking ground throughout • Inc. Magazine ranks Austin as the positive net absorption. the market, and bringing the total sq. ft. under fourth-best city for fast-growing construction up to 2,867,457 sq. ft. companies. Figure 2: Vacancy Rate and Asking Rates • Financial website NerdWallet ranked Austin as the second-best city for Vacancy Rate Asking Rate $29.50 women in the workforce. 25%

• Austin ranked as the fourth most 23% $28.50 creative city by Forbes. 21% $27.50 19% • Forbes lists Austin as the third- coolest city. 17% $26.50

15% • Austin landed the eighth spot on $25.50 Forbes list of best cities for young 13%

professionals. 11% $24.50 Q1 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Gross Average Annual Asking Rate Per Sq. Ft. Total Vacancy Source: CBRE Research, Q3 2014. © 2014, CBRE, Inc. © 2014, CBRE, Inc. $26.86 $21.94 $23.56 $16.72 $14.49 $23.32 $26.72 $26.81 $31.85 Class B N/A N/A $31.42 $27.00 $41.39 $29.86 $31.38 $30.65 $33.67 Avg. Direct Asking Lease Rates $/Sq. Ft./YR Class A

576,761 212,400 566,973 128,360 192,000 192,000 Sq. Ft. Sq. Under 1,190,963 1,190,963 2,867,457 Construction

76,500 167,871 244,371 Sq. Ft. Sq. 2014 YTD 2014 Delivered Personify and Vision Web moved into a combined 34,000 sq. ft. at River Place III. Foster Quan vacated 13,472 sq. ft. at 100 Congress. Apple vacated the entire building at Riata Corporate 4, in order to begin occupying their nearly completed campus. UT Systems occupied 29,149 sq. ft. at Lavaca Plaza. Polycom moved out of their 48,000 sq. ft. sublease space at 7700 Parmer - Building C. Construction

Austin saw its strongest quarter of 2014, with 442,016 sq. ft. of Austin saw its strongest quarter of 2014, with 442,016 (YTD) total up to positive net absorption, bringing the year-to-date negative 839,705 sq. ft. After a previous quarter of significant rebounded and led absorption over 100,000 sq. ft., the Southwest net absorption. The all submarkets with 187,746 sq. ft. of positive the CBD, recovering Southwest was followed very closely behind by 2014, with 185,807 from its own negative net absorption from Q2 taking sq. ft. Major move-ins include Cross Texas transmission taking 17,532 sq. 15,000 sq. ft. at City View center and NSS Labs ft. at Wild Basin Atrium. the Northwest and Negative net absorption was very modest, with negative net Far Northwest being the only submarkets with since 2010 that the absorption for Q3 2014. This is the first time snapping a Northwest ended a quarter with negative net absorption, absorption. The streak of 14 consecutive quarters of positive net Northwest returned 71,160 sq. ft. to the market, which was led by Apple vacating the entire building at Riata Corporate 4, as they begin occupying their new campus. The Far Northwest posted a far more modest negative net absorption of 7,839 sq. ft. With just under 3.7 million sq. ft. of active requirements in the market, demand continues to grow. In just four quarters, total demand in the market has increased over 1.2 million sq. ft. Major deals of Q3 2014: • • • • •

Q3 2014 2014 Q3 31,199 2014 Q2 72,126 72,126 61,326 71,423 54,968 25% 23% 21% 19% 17% 15% 13% 11% Sq. Ft. Sq. 193,212 138,871 216,580 839,705

2014 YTD 2014

Absorption 2014 Q1 Q4 2013 2013 Q4

2014

Vacancy Rate Vacancy 2013 Q3 Q2 2013 2013 Q2

Vacancy Rate Vacancy Q1 2013 2013 Q1 Net 11,871 2013 76,042 23,446 36,093 (7,829)

187,746

Sq. Ft. Sq. 185,807 (71,160) 442,016 2012 Q4

Absorption

Q3 2012 2012 Q3 Q2 2012 2012 Q2

2012

Q1 2012 2012 Q1 Q4 2011 2011 Q4 9.4% 9.2%

Rate

11.9% 11.5% 14.4% 15.6% 15.0% 16.8% 11.4% 2011 Q3 Overall Net Absorption 2011 2011

Vacancy

Q2 2011 2011 Q2 Q1 2011 2011 Q1

Total Annual Net Absorption Total

2010 Q4 2010 2010 Q4 Q3 2010 2010 Q3

Class B 71,267 Sq. Ft. Sq. 2010 Q2 874,345 874,345 293,012 591,648 Vacant 293,864 464,568

Q4 2009

1,101,332 1,185,399

4,875,435 2010 Q1

Q4 2009 2009 Q4 Q3 2009 2009 Q3

Q3 2008 Q2 2009 2009 Q2

Class A Class A Q1 2009 2009 Q1

Area

620,894 Q2 2008 Q4 2007 4,110,579 4,110,579 1,746,355 1,746,355 9,458,793 1,958,021 9,252,285 9,252,285 2,986,685 Rentable

12,586,758 12,586,758

42,720,370 2008 Q3 Q2 2008 2008 Q2

2006 Q1 2008 2008 Q1

0 0 600 400 200 800 800 600 400 200

(200) (400) (600) (800) 1,400 1,200 1,000 2,000 1,800 1,600 (600) (800) (200) (400) 1,000

(1,000) (1,000) 000's 000's 000's 000's Figure 3: Market Statistics Figure 3: Figure 5: Net Absorption Net Absorption and Vacancy Rate Figure 4: Net Absorption and Vacancy Totals Round Rock Round East South Southwest Far Northwest North Central CBD Northwest Market Sq. Ft. Net Absorption Sq. Ft. Absorption Sq. Net Source: CBRE Research, Q3 2014.

Source: CBRE Research, Q3 2014.

OFFICE THIRD QUARTER THIRD OFFICE MARKETVIEW Source: CBRE Research, Q3 2014.

Q3 2014 Austin Office | MarketView 2 Q3 2014 Austin Office | MarketView 3 . . . Q3 2014 Even with these deliveries, total product under construction rose once Even with these deliveries, total product under construction While previous quarters again, finishing the quarter at 2,867,457 sq. ft. the Southwest, Q3 2014 have seen new construction primarily focused in throughout Austin. saw projects breaking ground in multiple submarkets 3.2 (190,000 sq. ft.) breaking ground in the Major projects include Parmer ft. sq. the 128,000 on begin construction saw North Central the East, while Northwest also began construction on Central. The Far mixed use Lamar 106,000 sq. ft. Ridge, which will both add roughly two buildings at Paloma each. UNEMPLOYMENT Unemployment continued its downward trend at the national, state and local levels, with all seeing the same 10 bps drop in their respective rates. MSA continues to lead the pack Marcos Rock-San The Austin-Round toward full employment, settling in at 4.1% in the month of July saw national and state unemployment fall to 6.2% and 5.1% respectively Austin unemployment has now seen a total decrease of 100 bps since the According to Moody’s Analytics, Austin has seen a growth end of last year. of over 4% in its office employment since December 2010, and has added over 500,000 jobs in that timeframe. has garnered major attention from local and Austin, and most of Texas, national media outlets for their ability to maintain low unemployment numbers in the midst of a surging population boom. Austin has been while Dice ranked as the second best city for future job growth by Forbes, is leading the nation in tech job creation, and second for reports that Texas the largest workforce of tech professionals. OFFICE RENTS asking almost in citywide average experienced for Q3 2014 The increase rose Rates the previous quarter. rise in rates that occurred doubled the further pushing the record quarter-over-quarter, another $0.41 per sq. ft. A rates recovered from the slight decrease seen high up to $29.23. Class sq. jump of $0.23 per sq. ft., to $33.67 per in Q2 2014, with a significant sq. also saw increases of $0.57 and $0.62 per ft. Class B and C product all three which marks the first time in five quarters that ft., respectively, The CBD also saw rates rise in all three classes, classes saw rising rates. finished the quarter at $38.69 per sq. ft., an and total average rates Since Q3 2011, ft. from the previous quarter. increase of $0.38 per sq. lowest point, citywide average asking rates have when rates were at their three years. increased almost 15% in OFFICE PRODUCT Bank Plaza, the first The CBD saw construction completed on the IBC added over 167,000 sq. ft. building delivered downtown since 2009, and Prior to completion, the project was over of office space to the market. a 40,000 sq. ft. Roy, Rob 90% preleased. In the Southwest, the Judges at W, a mixed-use project and Hill Country Galleria - office medical building, YTD total completed with 36,500 sq. ft. of office space, brought the has plans for another construction up to 244,371 sq. ft. The CBD also issued a building permit office tower to break ground, as the city recently The 18-story building will add another for the 5th & Colorado office tower. ground early next quarter 179,000 sq. ft. to downtown, and should break 2014 2014 Q3 2014 2013 2013 2013 2012 2011 2011 2012 2012 Delivered sq. ft. 2010 Market Average Asking Market Average 2011 2011 2011 2011 2009 2008 Austin - Round Rock - San Marcos MSA Austin - Round Rock - San Marcos MSA 2010 2010 Class B 2007 2006 2009 2009 Under Construction sq. ft. Texas Texas Class A Class A 2005 2008 2008 2004 US 2003 2007 2007

0 500

1,000 1,500 2,000 2,500 3,000 000's 000's 2% 4% 3% 6% 5% 8% 7% 9% $18 $22 $20 $28 $26 $32 $30 $24 $34 Figure 8: Unemployment Rate Figure 7: Construction Gross Annual Average Asking Rates, per Sq. Ft. Asking Rates, Average Gross Annual Figure 6: 10% Source: U.S. Bureau of Labor Statistics, CBRE Research, Q3 2014. Source: CBRE Research, Q3 2014.

[email protected] 1 512 499 4939 499 1 512 e: CONTACTS about this Austin Office MarketView, For more information please contact: TEXAS RESEARCH Cirillo Lynn Operations Research Manager CBRE Americas Research Oak 2800 Post Suite 2300 Houston, TX 77056 e: [email protected] Nicholas Ianetta Coordinator Research CBRE Austin Research 100 Congress Avenue, Suite 500 Austin, TX 78701 t:

DISCLAIMER to be reliable. While we do not doubt its accuracy Information contained herein, including projections, has been obtained from sources believed . and Consulting can be found at www.cbre.us/research research produced by Global Research Additional U.S. to confirm independently its accuracy and have not verified it and make no guarantee, warranty or representation about it. It is your responsibility and all rights to the material are reserved and cannot be completeness. This information is presented exclusively for use by CBRE clients and professionals reproduced without prior written permission of CBRE. AND CONSULTING RESEARCH GLOBAL and Consulting – a which forms part of CBRE Global Research Team Research This report was prepared by the CBRE U.S. real estate market research, econometric network of preeminent researchers and consultants who collaborate to provide the globe. forecasting and consulting solutions to real estate investors and occupiers around FOLLOW CBRE FOLLOW

Q3 2014 Austin Office | MarketView 4 Austin Office MarketView

Q2 2014 CBRE Global Research and Consulting

VACANCY RATE ASKING RATE NET ABSORPTION UNEMPLOYMENT 11.8% $28.82 per Sq. Ft. 153,061 Sq. Ft. 4.2 % Y-o-Y

*Arrows indicate change from previous quarter. OVER 2 MILLION SQ. FT. UNDER CONSTRUCTION FOR FIRST TIME SINCE 2008. Figure 1: Quick Stats While it was another quarter of positive positive net absorption of 57,959 and 57,911 sq. absorption, Q2 2014 saw a slight increase in ft. respectively. Q2 2014 Q-o-Q Y-o-Y vacancy, to 11.8%, up 10 basis points (bps) quarter-over-quarter. With Q2 2014 posting The Southwest submarket saw its highest level Vacancy 11.8% h i 153,061 sq. ft. of positive net absorption, this of negative net absorption in seven quarters, marks the fourteenth straight quarter where there when it returned over 280,000 sq. ft. to the Asking Rates $28.82 per sq. ft. h h was positive net absorption and the first time in market. By posting 128,463 sq. ft. of negative Net Absorption 153,061 sq. ft. i i seven quarters that vacancy increased. There net absorption, the Southwest relinquished its is now over 37.5 million sq. ft. of office product title as the submarket with the lowest vacancy Under Construction 2.4 million sq. ft. h h currently occupied in the market. to the Northwest, which now show vacancy rates of 10.3% and 8.7%, respectively. The Delivered Construction 0 1 i Strong preleasing in Q1 2014 was followed by only other submarket to record negative net yet another quarter of significant lease trans- absorption for the quarter was the CBD, which Hot Topics actions for product currently under construc- ended the quarter with a modest 13,728 sq. Positive quarter sees vacancy rise. Asking tion. This was highlighted by ARM leasing over ft. of negative net absorption. 120,000 sq. ft. in Encino Trace I, which broke rates continue to reach record levels. ground this quarter in the Southwest submarket. Average asking rates in the market rose Under construction product reaches six MapMyFitness also leased the entire second another $0.23 per sq. ft. quarter-over-quarter, year high. floor at Seaholm, totaling 33,000 sq. ft. This up to $28.82 per sq. ft. on a full-service gross brings the level of preleased construction to (FSG) basis. The CBD, which saw rates fall in just under 900,000 sq. ft, which accounts for three straight quarters, also saw an increase • Forbes ranks Austin as the fastest- almost 40% of product currently under construc- of $0.28 per sq. ft. Asking rates are experi- growing city in the nation for the fourth tion. Demand in the market remains at a high encing dramatic spikes due in large part to straight year. level, with over 3.5 million sq. ft. of active office continued increases in taxes and operating requirements. expenses.

• A study by The Business Journals The Northwest submarket saw the majority of New construction once again makes big news ranked Austin as the top metro area positive net absorption for the quarter, posting with the kickoff of two major projects in the for small businesses. 129,196 sq. ft. The strong quarter was led by Southwest, totaling over 500,000 sq. ft. The Websense taking 59,000 sq. ft. at Quarry Oaks quarter saw both Capital Ridge and the Enci- Atrium Bldg A, with plans to expand into 33,000 no Trace buildings break ground, with ARM • According to a study by The Brookings sq. ft. early next year. The Northwest was fol- acting as the lead tenant for Encino Trace by Institute, Austin has been the nation’s lowed by the Far Northwest and North Central leasing 120,000 sq. ft. in Building I. top performer through both the submarkets, with both posting significant recession and recovery. Figure 2: Vacancy Rate and Asking Rate

• Niche Link ranked Austin as the Vacancy Rate Asking Rate second-best city for millennials. $29.00 25%

• Austin ranked third on Livability.com’s 23% $28.00 April list of the Top Ten Cities for New College Graduates. 21% $27.00 19% • Highspeedinternet.com lists Austin as the third-best city to start an online 17% $26.00 business. 15% $25.00 • A survey by MyFitnessPal ranked Austin 13% as the Top City for Group Fitness. 11% $24.00 Q1 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Gross Average Annual Asking Rate Per Sq. Ft. Total Vacancy

Source: CBRE Research, Q2 2014. © 2014, CBRE, Inc. r © 2014, CBRE, Inc. $14.37 $21.49 $22.49 $16.83 $26.80 $26.19 $25.72 $30.72 $22.75 Class B N/A N/A Rates $/Sq. Ft./Y $29.14 $29.89 $26.00 $30.85 $30.72 $40.88 $33.44 Avg. Direct Asking Avg. Direct Lease Class A

744,632 744,632 566,973 Sq. Ft. Sq. Under 1,054,329 2,365,934 Construction

0 Sq. Ft. Sq. 2014 YTD 2014 Delivered Office Depot moved into 25,000 sq. ft. at Amber Oaks H. Marvell downsized its space by 10,000 sq. ft.at Las Cimas II. AMD moved out of 118,000 sq. ft. at 7171 Southwest - 300. Parkway Solar Wind relocated from the entire 105,500 sq. ft. Solar Wind on Barton Creek 2, backfilling into building at the Park - 227,000 sq. ft. at 7171 Southwest Parkway AMD’s 400. CMC Americas vacated 22,253 sq. ft. at Stonebridge Plaza II. Construction

• • • Q2 2014 saw citywideQ2 2014 net absorption sq. ft., reach 153,061 marking straight the 14th quarter of positive net absorption, bringing the year-to-date (YTD) sq. ft. The total to 397,689 Northwest submarket accounted for over 120,000 sq. ft. of positive net absorption, making up 80% of total net absorption for the quarter. With the Southwest submarket seeing significant negative net absorption for the quarter, the Northwest took over as the submarket with the lowest vacancy, falling to 8.7%. It was also a strong quarter for the Northwest Far and North sq. ft. of positive and 57,911 Central submarkets, with 57,959 absorption. net The remaining negative net absorption across the market was modest, with the CBD submarkets being the only other submarket with negative absorption. This also marks only the third time since the that start the CBD of posted 2012 negative net absorption for the quarter It should be noted that upcoming quarters are expected to see strong positive absorption, with significant space already planned to be occupied. These include Box occupying 20,000 sq. ft at One American Center and UT Systems moving into 29,000 sq. ft. at next Plaza Lavaca quarter. Major deals of Q2 2014: • • Q2 2014 2014 Q2

7,405 19,328 2014 Q1 18,875 37,880 79,252 Sq. Ft. Sq. 210,031 140,538 397,689 397,689

(115,620)

25% 23% 21% 19% 17% 15% 13% 11% 2014 YTD 2014

Absorption 2013 Q4 Q3 2013 2013 Q3 Vacancy Rate Vacancy

2014 2013 Q2 Q1 2013 2013 Q1 Vacancy Rate Vacancy

2,674 Net 2012 Q4 57,911 57,959 27,202 20,310 129,196 Sq. Ft. Sq.

(13,728) 2013 153,061

(128,463) 2012 Q3

Absorption

Q2 2012 2012 Q2

2012 Q1

2012

Q4 2011 2011 Q4 Q3 2011 2011 Q3 8.7% Rate 14.1% 17.7% 17.7%

18.4% 12.9% 10.3% 12.0%

11.8% Overall Net Absorption 2011 2011 2011 Q2 Vacancy

Q1 2011 2011 Q1 Q4 2010 2010 Q4 Total Annual Net Absorption Total

2010

Q3 2010 2010 Q3 Q2 2010 2010 Q2 80,136 Class B

577,811 551,014 Sq. Ft. Sq.

962,464 Vacant 308,862 346,534 346,534 Q4 2010 Q1 2009

1,095,297 1,086,559

5,008,677

Q4 2009 2009 Q4 Q3 2009 2009 Q3

2008 Q2 2009 2009 Q2

Q1 2009 2009 Q1 Class A Area 2008 Q4 620,894 Q2 Absorption by Class 2007

4,110,579 4,110,579 9,084,414 1,746,355 1,746,355

1,958,021 9,382,293 9,382,293 2,986,685 Rentable

12,586,758 12,586,758 2008 Q3

42,475,999 42,475,999

Q2 2008 2008 Q2 Q1 2008 Q1 2006

0 0 800 600 400 200 600 400 200 800 (600) (800) (200) (400) (200) (400) (600) (800)

1,000 1,600 1,400 1,200 1,000 2,000 1,800

(1,000)

000's 000's 000's 000's Figure 5: Net Sq. Ft. Figure 3: Market Statistics Figure 3: Rate Figure 4: Net Absorption and Vacancy Southwest Round Rock Round East South North Central Far Northwest Northwest CBD Totals Market Net Absorption Sq. Ft. Source: CBRE Research, Q2 2014.

Source: CBRE Research, Q2 2014.

OFFICE SECOND QUARTER SECOND OFFICE INSERT MARKETVIEW Source: CBRE Research, Q2 2014.

Q2 2014 Austin Office | MarketView 2 Q2 2014 Austin Office | MarketView 3 OFFICE RENTS sq. ft. another $0.23 per asking rates rose Citywide average $28.82. For new record high of reaching a quarter-over-quarter, Class A rates saw a very slight the first time in ten quarters, per sq. ft. to $33.44 per sq. ft. Conversely, decrease, falling $0.03 to increases of $0.75 per sq. ft., rising Class B posted significant where Class was also reflected in the CBD, $22.75 per sq. ft. This and decreases and increases respectively, A and B product saw jumped up to $38.31 per sq. ft. total average rates ultimately increases in both the CBD and Class C rates saw significant suburban submarkets. OFFICE PRODUCT highest levels product under construction reached its office Total having since 2007, at over 2 million sq. ft. The Southwest, reached the launched two more large projects in Q2 2014, and leads all others highest levels ever recorded for the submarket project with over 1 million sq. ft. The two-building Trace Encino ARM leasing up totals 320,000 sq. ft., with a lead tenant in also broke ground in 120,000 sq. ft. in Building I. Capital Ridge leased, is starting May and, with no significant space currently will be accompanied construction as largely on spec. The project intersection of Loop by the 194-room Hotel Granduca near the projects are completed, 360 and Bee Caves Rd. When all current million sq. ft. of total the Southwest is poised to surpass over 10 second largest product in the submarket, and remain the submarket. UNEMPLOYMENT continue to show While both The United Sates and Texas Rock-San improvement in unemployment, the Austin-Round Q2 2014 saw Marcos MSA continues to outpace both, as in the month of April. unemployment fall to just above 4% to 4.2% fall a total Since the end of 2013, Austin has seen unemployment as 6.3% to of 90 bps. National and state rates both recorded Statistics, Bureau of Labor According to the U.S. 5.2% respectively. the state has added over 348,000 jobs since the beginning of the with 64,100 of those jobs coming in the month of April. year, has garnered major attention from local Austin, and most of Texas, and national media outlets for their ability to maintain low unemployment numbers in the midst of a surging population lists Austin as the third best major city for jobs, with boom. Forbes Houston, taking the fifth spot. As projected by city, another Texas the Austin metro area expected Robertson, demographer Ryan and CNN surpass the 2 million population mark by next summer, released a report listing Austin as the fastest growing city in the nation. 2014 2014 Q2 2014 2013 2013 2012 2011 2011 2012 Delivered sq. ft. 2010 2011 2011 Market Average Asking Market Average 2009 Austin - Round Rock - San Marcos MSA Austin - Round Rock - San Marcos MSA 2008 2010 Class B 2007 2006 2009 Under Construction sq. ft. Texas Texas 2005 Class A Class A 2008 2004 US 2003

2007 2007 2008 2009 2010 2011 2012 2013 0

500,000 Figure 7: Construction Gross Annual Average Asking Rates, per Sq. Ft. Average Asking Gross Annual Figure 6: Figure 8: Unemployment 2% 4% 3% 6% 5% 8% 7% 9% 1,000,000 1,500,000 2,500,000 2,000,000 3,000,000 $22 $20 $18 $26 $32 $30 $28 Source: Bureau of Labor Statistics, January 2014. Source: CBRE Research, Q2 2014.

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, Suite 2300 1 512 499 4939 e: nick.ianetta@cb Houston, TX 77056 e: [email protected] Nicholas Ianetta Research Coordinator CBRE Austin Research 100 Congress Avenue, Suite 500 Austin, TX 78701 t: Lynn Cirillo Manager Research Operations CBRE Americas Research 2800 Post Oak CONTACTS about this Austin Office MarketView, For more information please contact: TEXAS RESEARCH

DISCLAIMER to be reliable. While we do not doubt its accuracy Information contained herein, including projections, has been obtained from sources believed . and Consulting can be found at www.cbre.us/research research produced by Global Research Additional U.S. have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and have not verified it and make no guarantee, warranty or representation about it. It is your responsibility and all rights to the material are reserved and cannot be completeness. This information is presented exclusively for use by CBRE clients and professionals reproduced without prior written permission of CBRE. AND CONSULTING RESEARCH GLOBAL and Consulting – a which forms part of CBRE Global Research Team Research This report was prepared by the CBRE U.S. real estate market research, econometric network of preeminent researchers and consultants who collaborate to provide the globe. forecasting and consulting solutions to real estate investors and occupiers around FOLLOW CBRE FOLLOW

Q2 2014 Austin Office | MarketView 4